NEW DELHI/MUMBAI (Reuters) - Two of India’s big state banks saw the pace of bad loan growth slow in the second-quarter, but steep provisions for defaulters in bankruptcy proceedings mean profits will stay under pressure until at least March.
Punjab National Bank (PNB), the second-biggest state lender, reported a better-than-expected second quarter profit on Friday of 5.61 billion rupees, with additions to bad loans 42 percent less than the first quarter.
Union Bank of India, the sixth-biggest state lender, reported a surprise 15.31 billion-rupee loss in the three months to Sept. 30, mainly due to front-loading of provisions for bankruptcy cases but additional bad loans dropped 40 percent on the previous quarter.
Uco Bank, a smaller state-run lender that also reported second-quarter results, saw its net loss widening to 6.23 billion rupees.
State-run lenders account for the bulk of India’s 9.5 trillion rupees in soured bank loans as of June. The surge in bad loans has choked new lending in an economy which needs more investment to help spur growth.
The central bank has ordered commercial lenders to take 12 of the biggest loan defaulters, accounting for about a quarter of the sector’s non-performing loans, to bankruptcy proceedings.
It has ordered nearly 30 more firms to be pushed to bankruptcy if other forms of debt resolution do not work out by mid-December.
A $32 billion recapitalisation plan announced by the Indian government last month has given a lifeline to the 21 state-run banks, whose profitability is lower than the private lenders but they have higher capital requirements due to bigger loan books.
Sunil Mehta, chief executive of New Delhi-based PNB, said the recapitalisation announcement “boosted the morale” of bankers and said the bank would boost credit growth.
Ram Sangapure, a PNB executive director, said the bank aimed to increase loans at 11 percent in the full year to end-March, up from the 8.3 percent rise in domestic loans in the second quarter.
Union Bank Chief Executive Rajkiran Rai G said his bank would aim for loan growth of 10 percent in the 2017/2018 fiscal year. He said higher provisions would be a drag in this and the next quarter but saw a return to profitability from March.
The Reserve Bank of India has asked lenders to make minimum 50 percent provisioning by March on loans to firms in bankruptcy.
PNB said it was ahead of requirements.
For 65 billion rupees in bad debts held by 20 of the firms that could face bankruptcy proceedings from December, much of the provisioning has yet to be done, officials said.
Union Bank has 74 billion rupees in loans to companies in bankruptcy and 47 billion rupees to those in the second list, CEO Rai said, adding they have 55 percent provision cover for the first list of loans and 30 percent for the second.
($1 = 64.5950 Indian rupees)
Additional reporting by Samantha Kareen Nair in Bengaluru; Editing by Muralikumar Anantharaman and Edmund Blair