The 11 private lenders to have declared their March-quarter results set aside more than a third of their operating profits as provisions, data from Capitaline showed. The aggregate operating profit of these lenders stood at Rs 23,152.92 crore, while provisions added up to Rs 8,100.22 crore. This suggests no improvement from last year’s ratio. During January-March 2016, the same set of banks had set aside Rs 6,250.28 crore as provisions out of a total operating profit of Rs 18,250.64 crore.
Most of them saw a rise in provisions on a year-on-year (y-o-y) basis, with Lakshmi Vilas Bank seeing the largest jump — nearly 300% — to Rs 108.19 crore. Among large banks, Axis Bank recorded the steepest climb in provisions, which rose nearly 121% y-o-y to Rs 2,581.25 crore.
Axis was, however, able to prevent any major erosion of its operating profit. Jefferies said in an April 26 report, “Provisioning was 2.2x of Q4FY16 provisioning, but was 32% lower than Q3FY17 and 12.3% lower than our estimates. This lower credit cost resulted in net profit of `12.25 billion, 57.8% above our estimates.”
Three of them — ICICI Bank, Federal Bank and IDFC Bank — saw provisions falling by 12.9%, 68.4% and 59.6%, respectively. In some instances, the higher provisions were a result of regulatory intervention. Mid-sized players IndusInd Bank,Yes Bank and RBL Bank, which have so far kept asset quality issues at bay, ascribed part of the jump in their provisions to a Reserve Bank of India (RBI) directive to provide against loans provided for a merger deal in the cement industry.
IndusInd’s managing director Romesh Sobti said, “This asset is actually a bridge loan that has been given against a large M&A transaction in the cement industry. The loan is not due yet for payment. That will only be in June,” adding that the bank expects the provision to be reversed in May because the deal in question is about to be concluded soon.
Others were less forthcoming about the glide path that provisions may follow. ICICI Bank, while telling reporters that the worst on provisions is over, told analysts provisions will see a rise in FY18. In a note dated May 4, Credit Suisse said, “With large slippages in FY17, watch-list shrunk to `19,000 crore (~4% of loans). However, non NPL stress is still at ~6% and with low provision cushion credit costs are likely to stay elevated.”
HDFC Bank saw provisions jump more than 90% y-o-y, with management attributing much of it to provisioning for standard assets. Paresh Sukthankar, deputy managing director at the bank, said, “Of the Rs 550-crore increase in provisions sequentially, Rs 270 crore were on account of general provisions for standard assets and that reflected the almost Rs 60,000-crore increase in advances during this quarter.” Provisions against loans to which RBI’s dispensation was applied in Q3 also added to the figure.