PSBs stem slippages, but experts not convinced yet

By: | Published: August 18, 2016 6:07 AM

Fresh NPAs for 9 of top 10 banks fall a sharp 70% in June quarter

In what could be light at the end of a tunnel, fresh slippages — loans that turned non-performing — for nine of the top 10 public sector banks (PSBs) fell a sharp 70% in the quarter ended June at Rs 46,724 crore as compared to the preceding quarter. Bengaluru-headquartered Canara Bank saw just Rs 3,230 crore of slippages during the quarter as compared to Rs 24,724 crore in Q4FY16 — a drop of 86.9%. The bank also revealed that a majority of the fresh slippages during the quarter or R2,330 crore were accounted for by the priority sector. The contribution of large industries to fresh slippages, on the other hand, dropped from over 78.2% in Q4FY16 to just a third in Q1FY17.

However, analysts at HSBC Global Research observed that despite such a drop in slippages, these were higher than the pre-asset quality review (AQR) levels. “Going forward, given the high level of recognised stress and low provision coverage ratio of just 33%, we expect credit costs to remain high,” they noted. Credit costs are the provisions set aside by banks for bad loans as a percentage of their total loan book.

The New Delhi-headquartered Punjab National Bank (PNB), too, saw an over 80% (q-o-q) drop in fresh slippages in Q1FY17. The total reduction in non-performing assets (NPAs) due to recoveries, up-gradations and write-offs was more than fresh slippages. The bank’s top management said the creation of a ‘war room’ at the head office had enabled it to monitor NPAs and recoveries on a real time basis. “We have set up a real time digital network that allows us to be in touch and extend support to the field at the time of deduction. There is a committee of general managers who go through each account of R100 crore and above. There’s a special team formed for looking into it,” said Usha Ananthasubramanian, MD & CEO of the bank.

Analysts at Jefferies, though, observed that PNB’s recoveries included a large one-off and hence they are not entirely convinced if the trend can continue. “While Q1FY17 saw a strong pick up in NPA recoveries/upgrades, the composition of recoveries included a significant one-off. Management is hopeful of a full year figure of Rs 20,000 crore, but we are building in a more conservative Rs 13,100 crore,” they noted.

Bank of Baroda (BoB) reported more slippages in Q1FY17 than in Q4FY16. Analysts, however, are not too perturbed by this and believe the bank front loaded NPA recognition. “The gross NPA number is guided to be about R45,000-50,000 crore by end of the fiscal, with a bias towards the lower end of the range, although there might be front-ending of slippages and back-ending of recoveries,” analysts at Jefferies observed.

At the end of Q1FY17, BoB’s GNPAs stood at Rs 42,991.7 crore or 11.15% of its loan book. Analysts at Motilal Oswal, too, seemed comfortable with the bank’s performance during the June quarter, but with a bit of caution. “While corporate slippages trend seems to have softened, slippages in agri and retail segments were higher — a trend that needs to be monitored,” they observed.


Several private sector lenders reported significantly higher slippages during the quarter as compared to Q4FY16. Axis Bank’s fresh slippages during the quarter, for instance, were Rs 3,638 crore as compared to Rs 1,474 crore in Q4FY16. According to the bank’s top management, majority of the fresh slippages during the quarter were from the ‘watch list’ the bank had earlier created. “We have said in the past that over a two year period, we expect about 60% of the ‘watch list’ to slip into NPAs. What we saw this quarter was roughly 10% slip. We have also mentioned in the past that we expect a little bit of skew towards the first year of FY17. So, what is happening right now is in line with what our expectation was about how the ‘watch list’ was going to resolve itself,” said Jairam Sridharan, group executive & CFO of Axis Bank.

ICICI Bank’s fresh slippages in Q1FY17, at Rs 8,249 crore, were higher than the R7,003 crore that had slipped into NPAs in Q4FY16. Executive director NS Kannan said most of the fresh slippages during the quarter were from accounts the bank had been flagged off earlier. “About 77% of the gross additions to NPAs for the wholesale and SME businesses in Q1 of 2017 were on account of slippages from companies internally rated below investment grade in key sectors, the details of which the bank had disclosed in the previous quarter, and slippages from the restructured portfolio. Of the remaining additions, about 30% are expected to be upgraded during the current year itself,” Kannan added.

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