PSBs likely to regain path of profitably in FY20 with expected fall in NPAs: ICRA

Rating agency ICRA in its latest report has stated that Public Sector Banks (PSBs) are likely to report net profit of Rs 23,000-37,000 crore in the next fiscal year 2019-20, after four years of consecutive losses. The net profit may be supported by fall in gross non-performing assets (GNPAs). It added that GNPAs and net NPAs (NNPAs) of PSBs are likely to decline to 8.1-8.4% and 3.5-3.6% by March 2020, as against 10.3% and 5.3-5.4%, estimated for March 2019 and 10.9% and 6.3% as on December 31, 2018. However, it said overall profitability will remain weak with return on net worth (RoNW) of 4-6.3%.

The report said with reducing fresh slippages, the credit provisions are expected to decline, and the rating agency expect 14 PSBs in base case and 11 PSBs in the stress case to report profits during FY20, as compared to only five PSBs that are likely to report profits in FY19. In the first nine month of FY19, the net losses stood at Rs 42,900 crore and are expected to increase to Rs 65,000 crore during FY19 as compared to Rs 85,400 crore during FY18. The overall fresh slippages for PSBs are estimated to decline to Rs 2.5 trillion (4.5%) during FY19 and are expected to decline further to Rs 1.3-1.6 trillion (2.1-2.7%) during FY20.

ICRA said compared to PSBs, the performance of the private banks (PVBs) remained strong with year-on-year growth of 18.7% in advances as compared to 4.2% for PSBs as on December 31, 2018, and around 64% share in incremental credit growth during the trailing 12 months (TTM). With improved capital position, it said PSBs are expected to pursue credit growth and pose challenges to PVBs on both the lending and the deposit side and the market share gains are expected to slow down for PVBs, going forward. Besides, the deposit mobilisation to match high credit growth continues to remain a challenge for private banks. It added that with PSBs expected to chase credit and deposit growth next year, it may be difficult for banks to cut lending rates as the competition for deposits is expected to heighten.