Banks see bad quarter on asset quality

By: | Published: November 19, 2014 2:21 AM

Gross NPAs for 40 listed banks at Rs 2.72L cr in Q2, up 6.3% from June.

Indian banks reported a fairly high sequential rise in gross non-performing assets (GNPAs) in Q2FY15, according to data from Capitaline.
While some lenders, including State Bank of India (SBI), managed to reduce the pace of bad loan addition, others like Punjab National Bank (PNB) continued to see stress in their portfolio.

Data showed that gross NPAs for 40 listed banks stood at Rs 2.72 lakh crore at the end of the September quarter, up 6.3% from June. SBI, which accounts for more than 20% of the system’s bad loans, saw its NPAs grow 0.4% in Q2FY15 to Rs 60,712 crore from Q1FY15.

SBI said it has upgraded its risk-management system to dynamically rate corporates. While, this internal rating was earlier used just once a year, from the September quarter onwards, the bank is examining any account that reports an event that might have a probable impact on credit rating of the borrower. “We also have focused on recovery of written-off accounts,” said Krishna Kumar, MD & group executive.

SBI’s recoveries from written-off assets in Q2FY15 stood at Rs 466 crore, up 10.6% sequentially. The bank also benefited from lower slippages at Rs 7,700 crore compared with Rs 9,932 crore in Q1FY15.


Among private sector lenders, HDFC Bank and Axis Bank saw a sequential rise of 0.5% and 4.3%, respectively, in their gross bad loans.
At ICICI Bank, gross bad loans rose 6.4% q-o-q to Rs 11,547 crore in Q2. Talking to analysts, NS Kannan, executive director, ICICI Bank, said: “There is no specific sectoral pattern; it’s really a company-to-company and a case-to-case basis (situation) and Rs 850 crore is not very big in the overall scheme of things.”

Punjab National Bank (PNB) and Bank of Baroda (BoB) showed a sequential increase  of 5.8% and 8%, respectiely, in their gross NPAs during the July-September period.

In a recent report, JPMorgan had said it expected asset quality concerns at PNB to persist in the medium term. The bank’s gross NPAs rose to Rs 20,752 crore because upgradation to the standard category almost halved q-o-q to Rs 724 crore.

For a sample of 40 banks, Q2FY15 saw a slower growth in NPAs than the 10.3% q-o-q growth seen in Q2FY14.  However, this could change from April next year, as all fresh restructured assets will be classified as sub-standard and not standard.

Currently, banks need to provide for 5% of the outstanding value of the loan in case of a restructured account. However, a sub-standard account attracts higher provisioning at 15% for the secured exposure and 25% for the unsecured part.

Another reason for ICICI Bank seeing a rise in bad loans in Q2 was slippages from the restructured book. The lender saw a gross addition of NPAs to the tune of Rs 1,693 crore in Q2; out of that, Rs 800 crore was due to slippages from restructured assets.

“The management explained that a single account contributed a large proportion to slippage from restructured loans. While slippage was higher than guidance, fresh restructuring was lower,” Standard chartered Equity Research analysts Mahrukh wrote in a post-result note.

According to analysts, lenders have turned in a mixed performance on the NPA front. “We expect some vulnerability from higher stress creation in H2FY15 as economic activity continues to be modest,” said a note from IDFC Institutional Securities.

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