Profits of banking, financial services and insurance (BFSI) sector dropped by three per cent in the second quarter of the current fiscal due to weak revenue growth and higher provisions, according to a report.
A report by Kotak Institutional Equities suggested, “Earnings were earlier expected to move to the positive zone during July-September quarter, but remained sluggish.”
It also noted that gross non-performing loans (NPLs) increased to 4.3 per cent of the advances, while the NPLs stood at 5.3 per cent for public sector lenders and 2.1 per cent for private banks.
As per the report, large private banks have started indicating that the stress levels in their balance sheet are gradually easing and believe that fiscal 2014-15 was probably the weakest period from an impairment perspective. It further added that the public sector banks continue to be impacted by the restructured portfolio where they are currently witnessing a higher share of slippages.
The report also highlighted that the overall provisions increased 31 per cent but loan-loss provisions increased 41 per cent with a large share of provisions for impaired loans.
It further noted that the loan growth (under coverage) for the second quarter was the lowest in recent years at 10 per cent.
“We see loan growth, and consequently revenue growth, as the key challenge that is likely to continue in the next fiscal as we see little evidence of corporate demand as banks have negligible sanction pipelines,” the report said.