While the October-December period was good for private banks in terms of profitability, asset quality issues plagued the sector severely, with many of them reporting a rise in non-performing assets (NPAs). India’s largest private lender, ICICI Bank, for instance, reported gross NPAs of R13,083 crore (3.40%) in Q3FY15, up 25.8% y-o-y.
In a conference call with the media, ICICI Bank MD & CEO Chanda Kochhar said that the government was taking the right steps that would lead to a better GDP growth and cashflow for corporates. However, she added, “Since all these improvements come with a lag, turns in asset quality is expected to happen in 2-3 quarters from now.”
For ICICI Bank, slippages into the NPA book also came from its restructured portfolio with as much as R776 crore of loans turning NPAs.
“During this quarter, the slippage from restructured to npa book was R776 crore. Clearly, with the trend that we saw in the previous cycle in the early 2000s, this time around the slippages are higher,” Kochhar told reporters.
Axis Bank, too, showed some stress in its asset quality as gross NPA ratio stood at 1.34%, a y-o-y increase of 9 bps, while net NPAs were at 0.44%, up 2 bps from the same period last year. Even Axis Bank saw loans it has restructured in the past turning into NPAs.
Sanjeev Kumar Gupta, CFO, Axis Bank, said the bank expected total slippage from the restructured book to be around that 25% going ahead. In this quarter, the slippage from the restructured book to the NPA was around R159 crore.
However, Kotak Mahindra Bank had reasons to cheer as it managed to lower its NPAs as a percentage of advances in the quarter under review. Gross NPAs declined 14 bps y-o-y to 1.87% of gross advances and net NPAs declined 13 bps y-o-y to reach 0.97% of net advances.
With RBI’s forbearance on classifying restructured assets as standard about to end in April, the banking industry is likely to have a challenging time managing bad loans. While a majority of these loans originate from public sector banks, private banks, too, stand to be affected.
Private sector banks did not put up a great show on the net interest margin (NIM) front either, with most of them reporting flat growth, or decline, in their margins. KMB, for instance, reported a 30-bps sequential contraction in its NIMs, which stood at 4.7% as on December 31. Meanwhile, Axis Bank’s margins in Q3FY15 contracted 4 bps sequentially to 3.93%.
Smaller private banks such as Yes Bank and IndusInd Bank reported 3 bps and 4 bps change in their NIMs. ICICI Bank, too, saw only a marginal change in its margins at 3.46%. On the profit front, private banks have all seen double-digit growth in the quarter under review. While KMB’s net profit was up 37% y-o-y at R465 crore, Axis Bank and ICICI Bank saw 18% and 14% growth in net profit, respectively on a y-o-y basis.