Mumbai: reserve Bank of India ,reserve Bank of India) has asked banks to stop including writebacks from recovery of bad loans written off as part of their income. From the third quarter, banks will have to adjust these recoveries against the provisions for bad loans in their profit and loss statement. While this will not affect the total net profit reported by the bank, it will result in higher transparent,
Though credit growth has been flat for the first half, many banks have reported a big jump in their interest income as well as other income. This was because many large corporate accounts that were declared non-performing assets (NPA) and fully provided for recovery in the past. Some of the big recoveries this year include DHFL and Kingfisher Airlines during the first half of FY22. Many banks that recovered their loans added interest receivable to the interest income and split their claims with respect to the principal amount for other income.
This enabled banks to show better ratios despite not having much lending activity in the first half. An increase in interest income leads to an increase in the average return on advances of the bank. The cost to income ratio has also improved.
Apart from resolving default cases, banks also recover their bad loans by selling them for cash to asset reconstruction companies. The rest of the financial year is likely to see some big recovery. Banks have given bad loans of Rs 82,500 crore to 22 companies for sale to National Asset Reconstruction Company (NARCL). Even if banks get a fraction of these advances, it will still add to their bottom line as most of these loans are fully disbursed.
In addition to recovery from bad loans, the bank’s profits were boosted by Treasury earnings in the last quarter as banks sold bonds that were bought when interest rates were high. With the RBI now expected to infuse liquidity in the banking system, bond yields are expected to rise, resulting in a fall in the value of bonds bought by banks when interest rates are lower. In so far as these bonds are part of the trading portfolio of banks, they will have to make additional provisions.
Apart from two big recoveries from Kingfisher Airlines and DHFL, banks have recovered most of their NPAs in the metals sector thanks to the global commodity supercycle. For example, SBI got Rs 470 crore in MSP Metaliks, which was 50 per cent more than the reserves. Similarly, the Canara Bank-led lender managed to get Rs 531 crore for its loan Sathavahana Ispat,
While banks are betting on corporate debt recovery in the second half, most corporates have not yet availed of their sanctioned lines of credit. This will put further pressure on bank interest income as all lenders are now pursuing home loans and reducing interest rates even after RBI talks of normalisation.
Though credit growth has been flat for the first half, many banks have reported a big jump in their interest income as well as other income. This was because many large corporate accounts that were declared non-performing assets (NPA) and fully provided for recovery in the past. Some of the big recoveries this year include DHFL and Kingfisher Airlines during the first half of FY22. Many banks that recovered their loans added interest receivable to the interest income and split their claims with respect to the principal amount for other income.
This enabled banks to show better ratios despite not having much lending activity in the first half. An increase in interest income leads to an increase in the average return on advances of the bank. The cost to income ratio has also improved.
Apart from resolving default cases, banks also recover their bad loans by selling them for cash to asset reconstruction companies. The rest of the financial year is likely to see some big recovery. Banks have given bad loans of Rs 82,500 crore to 22 companies for sale to National Asset Reconstruction Company (NARCL). Even if banks get a fraction of these advances, it will still add to their bottom line as most of these loans are fully disbursed.
In addition to recovery from bad loans, the bank’s profits were boosted by Treasury earnings in the last quarter as banks sold bonds that were bought when interest rates were high. With the RBI now expected to infuse liquidity in the banking system, bond yields are expected to rise, resulting in a fall in the value of bonds bought by banks when interest rates are lower. In so far as these bonds are part of the trading portfolio of banks, they will have to make additional provisions.
Apart from two big recoveries from Kingfisher Airlines and DHFL, banks have recovered most of their NPAs in the metals sector thanks to the global commodity supercycle. For example, SBI got Rs 470 crore in MSP Metaliks, which was 50 per cent more than the reserves. Similarly, the Canara Bank-led lender managed to get Rs 531 crore for its loan Sathavahana Ispat,
While banks are betting on corporate debt recovery in the second half, most corporates have not yet availed of their sanctioned lines of credit. This will put further pressure on bank interest income as all lenders are now pursuing home loans and reducing interest rates even after RBI talks of normalisation.
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