FE Editorial : Don’t bank on it
The Financial Express: Feb 21 2013, 01:55 IST
Banks may have reported a drop in fresh slippages in the three months to December 2012, and the additions to both gross and net non-performing assets (NPAs) portfolios may have been just10 basis points, but one can’t be sure they won’t trend up again. So far, it’s mainly mid-corporate exposure that has turned toxic—Kingfisher Airlines, for instance—but the next round of loan losses could crop up in the large corporates portfolio. Given the economy isn’t yet back on track, it’s quite possible that restructured loans, which, for public sector banks, dropped by about 30 basis points sequentially to 7% of total loans, might see an uptick—close to R63,000 crore worth of debt has been recast by the corporate debt restructuring (CDR) cell in 2012-13 so far.
More than concerns on asset quality, though, it was the earnings growth, at just 8% yoy, that was disappointing given it came off the muted base of Q3FY12. The bad news is that profits are unlikely to regain much momentum—Kotak Institutional Equities estimates earnings will grow at a compounded 9% between FY13-FY15. The main reason why profits will grow at a slower pace is because business is expected to be dull with fewer opportunities for banks to lend. Loan growth averaged 14.5% in the December 2012 quarter, but between April and January this year, non-food credit has grown a muted 7%. Although the yoy growth of 16% is far more robust, it’s way below the long-term average of 20%-plus. Since much of the business in
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