A group of public sector banks (PSBs) have become wary after the Infrastructure Leasing & Financial Services (IL&FS) collapsed in September 2018, and Jet Airways ceased operations in April. Hence, they set aside a whopping Rs 50,000 crore in the March quarter for potential losses from existing bad loans, The Financial Express reported.
The amount reflects the magnitude of the issue of non-performing assets (NPAs) in the banking sector. It is not clear what portion of this would be written off and how much will be used.
The provision for loan loss by 13 PSBs at the end of Q4FY19 was Rs 52,739 crore, which is significantly higher than the provision in Q3FY19, at Rs 29,625 crore. A majority of these 13 banks made losses in the March quarter.
Rajnish Kumar, the chairman of State Bank of India, said in a conference last week that, of the Rs 3,487-crore total exposure of the bank to the IL&FS group, Rs 1,125 crore was classified as an NPA. "Now whatever happens, the remaining legacy credit cost will be done by March 2020. From April 1, 2020, there will be no legacy cost as far as corporate book is concerned," Kumar said.
SBI has the highest exposure to beleaguered Jet Airways, amounting to nearly Rs 1,200 crore, which has also been classified as an NPA. In Q4FY19, SBI made loan loss provisions worth Rs 16,501 crore, nearly four times its provisions in Q3FY19.
In eight of the 13 PSBs, these provisions were far more than the net interest income (NII) at the end of March. The total NII for the 13 lenders was at Rs 43,304 crore as against the loan loss provisions of nearly Rs 50,000 crore. Banking experts say it could still be a couple of quarters before the lenders' books are clean.
The Indian Overseas Bank recently said that the reason for its losses was the increasing loan provisions made for NPAs and fraudulent accounts. The bank claimed that the overall impact of these events in the previous financial year was Rs 2,150 crore.
"We believe the bank would be making provisions aggressively in the next few quarters. This would result in negative earnings for at least the next couple of quarters," analysts told the paper. Similarly, Canara Bank was also a prey to rising loan loss provisions and posted a loss of Rs 551 crore in Q4FY19. The bank needed to make extra provisions of nearly Rs 3,000 crore for some bad loans.
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