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Public sector banks show signs of failing health
Dec 6, 2013


For public sector banks in India the road to prosperity is a long way ahead. Bearing the burden of nonperforming assets is not their only dilemma. They also need to avoid the high incidence of corporate defaults in a prolonged weak economic cycle. In addition the working capital cycles of relatively healthier corporate have also got stretched. All this at a time when the banks' own profitability is under pressure. Neither is there much scope to raise lending margins. Nor are the treasury portfolios offering any relief. On the contrary even mark to market losses have wiped out profits for many banks. As per rating agency ICRA, the gross non-performing assets (NPAs) of PSU banks may go up to 5% in FY14. This will bring it closest to the levels seen in 2002. And the painful journey of getting asset quality back into shape will be a long one for most. Investors therefore need to be very careful about investing in PSU banks rather than getting drawn to their valuations.

Data source: ICRA

This Chart Of The Day was published in The 5 Minute WrapUp - Can India ever deal with crony capitalism?

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