Private Banks Defeat PSBs on Profit Chart

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Private banks defeat PSBs on profit chart

For the first time, the total profit of private sector banks has exceeded the earnings of all public sector lenders, which accounted for more than 70% of deposits and advances in the country.
The net profit of listed private banks stood at 38,022 crore in 2014-15 compared with 37,520 for public sector banks (PSBs), according to data compiled by ET Intelligence Group. The profit of PSBs is at a five-year low, while earnings of private banks have trebled in five years.

PSBs have been hurt by sharp rise and problem loans, which led to higher expenses by way of higher provisions and resulted in lower revenue as a substantial portion of their loan book did not earn any income.

"The numbers are a reflection of the way private sector banks have grown in terms of reach -like opening branches and raising much-needed capital for expansion," said Ananda Bhoumik, senior director financial institutions at India Ratings. "It also appears that public sector banks may cease to be dominant players, with their share falling to 50% over the next 10 years if they continue to underperform and if they continue to be capital-starved."

Private banks outperformed their public sector rivals even though the public sector rivals even though the state-owned lenders have a dominant share of deposits and advances. The market share of public sector banks was 72.9% in deposits and 71.6% in advances as of March 31, according to data from the Reserve Bank of India.

The sharp rise in stressed loans on the books of PSBs has been one of the key factors that led to their poor performance, said Karthik Srinivasan, senior vice-president and co-head (financial sector ratings) at ICRA. "PSBs have been beaten down so much that they can only bounce back provided the economy improves," he said.

Stressed loans, or gross non-performing assets (NPAs), where the forming assets (NPAs), where the borrower fails to repay dues on time, for PSBs were almost eight times higher than those of private banks. Gross NPAs for the government-owned banks stood at 2,78,468 crore compared with 32,701 crore for private banks. The provisions for bad loans made by PSBs stood at 83,198 crore, which is six times higher than the 12,198 crore set aside by private banks.

The net profit of PSBs rose 1%, while that of private banks increased 15% over FY14. 12 PSBs posted a drop in net profit while Indian Overseas Bank reported a loss.