The largest public sector bank of India posted a set of very disappointing numbers for Q1FY14. The market, as such had expected poor numbers, especially w.r.t asset quality but it turned out to be worse than expected. Its Gross NPAs came in higher at 5.56% v/s 4.75% (QoQ) and 4.99% (YoY) and Net NPA also worsened at 2.83% v/s 2.10% (QoQ) and 2.22% (YoY). During the quarter, its bad loans increased by Rs 9,702 crore to Rs 60,891 crore as of June 30, 2013, up19% sequentially. Write off loans came in lower at Rs.1148 crore, down from Rs.2418 crore in Q4.  The bank’s higher NPAs was mainly on account of agriculture and SMEs sector. But given the bountiful rainfall, the management expects these NPAs from the agriculture sector to taper off. Yet, one cannot help but wonder whether these NPAs are going up in anticipation of the 2014 elections, on hopes that maybe the sector could see a repeat of write-offs. It is unlikely but probably that is what the farmers, habituated now are expecting.

The Bank, despite the deteriorating asset quality, reduced provisioning coverage from 60.60% to 66.58%. The most shocking part of the numbers were the fresh slippages for the quarter, which jumped up to Rs.13,766 crore v/s Rs.5,868 crore in Q4. This number is really huge and an indication of where all the trouble lay. Recoveries on the other hand came in pretty paltry at Rs.1397 crore and loans restructured was also down at Rs.4384 crore v/s Rs.8669 crore in Q4 (QoQ).

Net interest income was up just 3.5% (YoY) at Rs.11,512 crore but NIM came in lower at 3.44% v/s 3.66% (QoQ). Consolidated net profit came in at Rs.4298 crore, down from Rs.4875 crore in previous Q1 but better than Q4 net profit at Rs.3818 crore. Profit wad affected due to forex losses and higher pensions. Looking ahead, things continue to look uncertain and unless the macro environment improves, we could see some more pain ahead. Margins could see some more compression and the coming quarter could see trouble coming from the corporate sector.