The banking sector in India continues to witness a surge in bad loans, albeit at a slower pace as compared to last two quarters.
Last week saw three of the large private sector banks reporting increase in gross non-performing loans majorly led by reclassification of certain stressed restructured assets as bad loans, along with higher slippages in small and medium businesses (SME).
Axis Bank, the third largest private sector bank in India, witnessed nearly 57% sequential increase in gross NPAs taking its gross bad loans to Rs 9,553 crore or 2.54% of total gross advances as at end of June 2016 from 1.67% at the end of March 2016. The rise in NPA was not too surprising considering the fact that 92% of slippages in the corporate segment worth Rs 2680 crore were from the bank’s watch list it had declared during its last quarterly earnings. Axis bank had in April 2016 declared a watch list consisting of all potential stressed corporate accounts with Rs 22,628 crore worth of funded loans, which were at higher risk of turning into NPAs. Axis Bank had indicated that nearly 60% of these loans would flow into NPA over the next 8 quarters. However, Axis Bank also reported that some accounts from the education and health care sectors had slipped into NPAs.
Siddharth Purohit, banking analyst at Angel Broking believes that Axis Bank’s asset quality seems to have deteriorated and that the macro situation might result in little more stress on the book in the near term. HDFC Bank that reported strong 20% y-o-y rise in its net profit in the June quarter, too witnessed marginal deterioration in its asset quality largely driven by SME and agricultural loan segments. The second largest private bank witnessed Rs 1760 crore of gross slippages that saw its gross NPLs (as percentage of overall gross advances) rising by 10 basis points from 0.94% as of March 2016 to 1.04%.
Similarly Kotak Mahindra Bank witnessed moderate deterioration in asset quality with gross bad loans rising by 14 bps sequentially to 2.50% on account of bad loans in SME segment even as the total stressed assets including restructured assets remained broadly stable.
Vijaya bank, a mid-sized public sector bank on the other reported nearly 9.3% increase in absolute gross bad loans to Rs 6589 crores that led to its GNPA rising by 67 basis points to 7.31%.
The Indian banking industry has seen huge pile up of bad loans with gross NPAs rising nearly 71% in last six months of fiscal 2016 to Rs 5.8 lakh crores or 7.6% of total gross advances, following the RBI’s asset quality review (AQR) across the banking sector in December 2016 that required banks to recognise select stressed accounts as non-performing assets (NPAs).Going ahead, analysts expect the asset quality stress to persist for another 3-4 quarters.
“We expect asset quality setback would continue due to contagion impact of the RBI’s AQR along with slower pace of economic recovery and higher corporate debt level in multiple stressed sectors,” wrote Ashutosh Kumar Mishra, banking analyst at Reliance Securities in a report released earlier this month.
Bad loans continue to rise
