The bad loan hit and capital-starved Rs 166 lakh crore assets size banking industry finally look for better days ahead.
The industry has returned to profitability in the first half (April-September) of 2019-20 after two successive years of losses on the back of high provisioning for non-performing loans, delayed recovery and lower credit growth.
The 94 scheduled commercial banks together clocked losses of Rs 23,397 crore in 2017-18 and Rs 32,438 crore losses in 2018-19. These include public sectors banks (PSBS), old private sector banks, new private banks, foreign banks, and the differentiated new banking models like payments and small finance banks. This data is part of the RBI's report on trends and progress of banking in India.
While the first half of the financial performance of all banks shows that they have managed to remain in green, but the challenges remain as the stress in the corporate world hasn't receded fully. There are still surprises coming in the market.
The good news is that the public sector banks (PSBs) have got capital from the government. There is also consolidation underway to create 10 large PSBs which would help is faster decision making and better control banks by the majority owner government. In terms of the balance sheet or growth in total assets, the PSBs balance sheet remained stagnant at Rs 100 lakh crore in the last two years ending 2018-19.
The private sector with the exception of few has also managed to raise capital through qualified institutional investors. The private sector has been growing at the cost of PSBs and also pushing retail banking growth. In terms of balance sheet, the private sector saw its total assets growing from Rs 42 lakh crore in 2017-18 to Rs 52 lakh crore in 2018-19.
The small finance banks are the new addition. The balance sheet of this new differentiated banks grew from Rs 51,655 crore in 2017-18 to Rs 83,537 crore in 2018-19.
Going forward, a lot depends on the recovery of bad loans a hundred of defaulters are languishing in the insolvency and bankruptcy code (IBC ). This new act for restructuring or liquidation of defaulting companies is gradually stabilising with courts also setting the right precedents. The recent Essar Steel case is a good example where the lenders lead by Sbi have finally got their money back after a slew of litigations.
The biggest challenge to credit growth will now come from the slowdown in economic activity. This could impact many of the sectors of the economy where the banks have exposure. Similarly, the retail engine which contributed to most to the growth in the last 4-5 years, is also witnessing growth in the unsecured segments like personal loans, credit cards and consumer durable financing. These segments pose risk to banks balance sheets.