Aggregate gross non-performing assets (NPAs) in the Indian banking system jumped more than 98% year-on-year to Rs 6,68,824.72 crore during the quarter ended September, as the asset quality at private-sector banks underwent severe deterioration, even as their state-owned peers showed divergent trends in terms of bad loan accretion and resolution. On a sequential basis, gross NPAs in the system rose 6.44%.
One of the laggards on the asset quality front was Axis Bank, whose stressed assets constituted 5.46% of net assets as on September 30, rising sharply from 4.21% as on June 30.
The bank said provisions for NPAs jumped 71% y-o-y to R3,623 crore as loans worth R8,772 crore turned non-performing during the quarter.
More than 83% of slippages, or fresh bad loans, during the quarter came from the watch list it had drawn up in April of accounts that could go on to be the key source of stress in the next two years.
“We now believe that slippages from the watch list will be more than the 60% we had originally envisaged. A materially higher portion of the watch list could turn NPA by the end of FY18,” CFO Jairam Sridharan said.
ICICI Bank, saw a 70-bps sequential increase in overall impaired loans to 8.2%, with gross NPAs comprising 6.8% and restructured loans 1.4% of all assets. Managing director and CEO Chanda Kochhar said about 80% of slippages for the wholesale and SME businesses came from companies on the bank’s watch list.
State Bank of India saw net NPAs rising 205 bps y-o-y and 14 bps sequentially to 4.19%. Of total slippages of Rs 10,341 crore, around 47% came from the R4,853-crore watch list it had created in the quarter ended December 2015. Chairman Arundhati Bhattacharya said, “Slippages from the watch list and the restructured book is still ranging between 75% and 80%. Therefore, around 25% will be outside the watch list. To that extent, the watch list at R25,951 crore will probably go down by another R5,000-7,000 crore.”
SBI’s associates State Bank of Bikaner and Jaipur and State Bank of Mysore saw the maximum rise in gross NPAs – 66.98% and 65.94% y-o-y, respectively.
On the other hand, Bank of Baroda and Bank of India saw an improvement in the asset quality metrics. While the former saw total impaired assets dropping to 10.3% from 10.4% at the end of June, Bank of India reported a 40% sequential drop in slippages.
Union Bank of India, whose net profit dropped nearly 73% y-o-y, saw provisions jump nearly 275% y-o-y. “We lower our FY17 net profit estimates by ~10% on factoring in higher credit costs persisting on identified stress by the bank,” Bank of America Merill Lynch wrote in a note dated November 7. “Moreover, with Tier-1 weak, growth will be a challenge, in our view.”
Overall provisioning in the banking system rose 80.5% y-o-y to R45,892.75 crore. Apart from NPAs, a drop in bond yields and resultant provisioning for pension liabilities pushed up the figure at public sector banks.
P Sitaram, executive director at IDBI Bank, told FE, “Since a lot of the provisions that are set aside for retired employees, gratuity payments, etc, are linked to the G-Sec yield, the rally in them in recent months required us to make higher provisions in the September quarter.”
In a note dated November 14, Credit Suisse said going ahead, there could be fresh triggers for a deterioration in asset quality. “Disruptions post the demonetisation (of R500 and R1,000 notes) is likely to add to the asset quality stress for the financial system, particularly for lenders exposed to real estate (CRE/LAP) and SME segments.”