Higher provisioning for bad loans have dragged down the profits of most state-owned banks while private sector banks with lower provisioning have reported higher profits in the third quarter ended December 31, 2011. Public sector banks account around 70-75 per cent of the total loans in the banking sector.

KR Kamath, CMD of Punjab National Bank (PNB), told Financial Chronicle that the provisioning for public sector banks increased due to several factors. “The income tax has been high, there was a depreciation in investments as yields fell sharply on the last day, and because of non-performing loan accounts.”

PNB’s net profit moderated to 5.5 per cent to Rs 1,550 crore due to high provisions against non-performing loans in the third quarter (October-December 2011). During the quarter, PNB’s provisions against bad loans increased more than 32 per cent to Rs 946 crore as compared with Rs 714 crore a year back. PNB’s gross non-performing asset (NPA) ratio increased from 2.05 per cent to 2.42 per cent sequentially while the net NPA ratio too rose from 0.84 per cent to 1.11 per cent quarter-on-quarter.

Canara Bank reported a 20.8 per cent fall in net profit on account of higher provisioning for bad loans and reduced interest incomes. Gross provisions made by the bank during the third quarter amounted to Rs 501 crore compared with Rs 157.28 crore in the same period a year ago. Gross non-performing loans of the bank rose to Rs 3,999 crore, an increase of Rs 1,245 crore over the corresponding period last year.

On the same lines, Bank of Baroda (BoB) made total provisions of Rs 836 crore in the third quarter of FY12, a massive jump of 175 per cent on a year-on-year basis. The bank saw slippages of around Rs 950 crore as against Rs 550 crore in Q2. It restructured assets worth Rs 2,116 crore out of total outstanding restructured book of Rs 9,500 crore.

State Bank of India, Punjab National Bank, Corporation Bank and Bank of India have declared loans to Kingfisher Airlines as NPA for defaulting on payment of dues. SBI is expected to announce its third quarter financial results on February 12.

Higher provision for bad loans and restructured assets pulled down Central Bank of India's net profit fell by 72 per cent to Rs 113 crore in the October-December 20-11 period, agai-nst Rs 404 crore in the corresponding year-ago period. CBI’s incremental bad loans increased by 28 per cent (or Rs 1,082 crore) to Rs 4,922 crore in the third quarter. There was an incremental increase of Rs 3,616 crore in restructured assets in October-December 2011.

Union Bank, too, saw a deceleration in profitability in the third quarter due to a sharp jump in provisions towards bad loans. Union Bank reported a net profit of Rs 197 crore for the October-December quarter of FY12, a decrease of 66 per cent as compared to Rs 579.57 crore in the corresponding quarter last year.

India’s largest private lender ICICI Bank, which reported a 20 per cent increase in net profit to Rs 1,728 crore for the third quarter, saw a 27 per cent drop in provisioning for bad loans to Rs 341 crore in third quarter ended December 31, 2011 from Rs 465 crore during corresponding period last year. The bank’s net non-performing assets fell 28 per cent to Rs 2,082 crore at December 31, 2011.

On the same lines, HDFC Bank decreased provisioning and contingencies for the quarter ended December 31, 2011 to Rs 329.2 crore (against Rs 465.9 crores for the corresponding quarter ended December 31, 2010), comprising primarily of loan loss provision of Rs 289.3 crore due to stable asset quality against Rs 292.9 crore for the corresponding quarter ended December 31, 2010.

According to Karthik Srinivasan, senior VP at Icra, said, “The increase in provisioning for public sector banks was because of certain large corporate accounts in power sector, aviation and telecom being restructured or being classified as NPAs.” The strategy of private sector banks to slow down lending and focusing more on improving asset quality helped them to report higher profits.