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Small is ‘more’ beautiful
The performance of the Indian banking sector during the financial year 2016 reveals a dismal picture, unprecedented and unexpected in its long history. If profit is considered as one of the commonly accepted indicators of good performance, majority of the big banks have reported huge losses.

In prudent asset management, the ratio of non-performing assets (NPA) has to be very low. However, the financial statements of most of the bigger banks show upsurge in net NPA ratios, even after making fairly larger provisions for the stressed assets. Smaller banks in the private sector have reported better performance compared to the bigger public sector banks.


Big banks and bigger losses


Out of the 26 public sector banks, 14 have incurred losses during FY 2016. The exception is the State Bank of India, the biggest and oldest bank. It has declared a net profit of Rs 12,224 crore, though lower than that of the previous year’s level of Rs 13,102 crore. Among its associate banks, only State Bank of Patiala could not retain its profit level during the year.  Its loss is Rs 972 core as against the net profit of Rs 362 crore in FY 2015. Its gross NPA ratio has jumped during the year to 7.87 per cent from 5.41 per cent in the previous year. The smallest of the associate banks - State Bank of Mysore- has managed its bottom line at Rs 357 crore.

Among the nine big banks in the public sector – having a total business of above Rs 4 lakh crore – seven have reported losses. State Bank of India and Union Bank of India are the only exceptions. Banking giants having cross border business exposures have incurred losses for the first time in living memory. And the losses are humungous. To quote: Bank of India’s lost Rs 6089 crore; Bank of Baroda Rs 5375 crore; Punjab National Bank Rs 3974 crore and IDBI Bank Rs 3665 crore.

Of the 11 public sector banks in the business group of Rs 2 lakh to Rs 4 lakh, five have reported losses. Indian  Overseas Bank suffered a higher loss than the previous year, at Rs 2897 crore. UCO Bank comes next with a loss of Rs 2799 crore. The other three banks are: Dena Bank: Rs 935 crore; Allahabad Bank Rs 743 crore and Corporation Bank Rs 506 crore.

In the group of smaller banks having total business less than Rs 2 lakh, there are six banks, of which only two are in the red. One is State Bank of Patiala, quoted earlier and the other one is United Bank of India. Four banks in this group of smaller banks have made profits.

Smaller Banks and Lesser Losses

Smaller banks of the old generation in the private sector have maintained their bottom lines. All these 12 banks are smaller in size, having the total business volume less than Rs 2 lakh crore. Ten among them are much smaller, operating with business levels below Rs one lakh crore. Only two of the banks could not earn profits. The gross NPA ratios were much smaller in the case of all these banks compared to the big banks in the public sector. These were below 5 per cent in the case of these smaller banks. While the highest ratio for the bigger public sector banks was 17.40 per cent (Indian Overseas Bank), it was 8.32 per cent (Jammu and Kashmir Bank) in the case of private sector banks.

The bulging contaminated assets, partial contraction in interest income and the necessity of raising the provision coverage ratios are the factors that impinged on the bottom lines.

Drawing inferences from this limited analysis, it may be said that on the profit front during the year FY 2016, the performance of the smaller banks in the private sector was much better than that of the bigger banks in the public sector. Besides this, a review of the performance of new generation banks in the private sector during the same period reveals that all the six banks in this group have declared profits, keeping their gross NPA ratios under control.

In a snap shot, small banks appear to be more beautiful.


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