The total amount of provisions made by seven major private sector banks that have declared their earnings for the March quarter has more than doubled compared with the same quarter last year as a result of the asset quality review conducted by the Reserve Bank of India (RBI) which required banks to identify and provide for a list of stressed accounts.
ICICI Bank’s net profit for the quarter fell 76% year-on-year because of a surge in provisions, which rose nearly two-and-a-half times over the same period last year.
“The additions towards NPAs were Rs 6,500 crore in Q3 and this quarter it is about Rs 7,000 crore. It is as we had mentioned that NPA additions in Q4 would be more or less similar to the additions in Q3 and I am stating that we have completed RBI’s asset quality review (AQR) exercise in line with the AQR exercise,” said Chanda Kochhar, the bank’s managing director and CEO, in a post-results interaction.
Other private sector players – Kotak Mahindra Bank, Axis Bank, IndusInd Bank, YES Bank and Federal Bank – too reported jumps in their provisions. Some banks opted for a prudential measure of providing more towards standard assets to mitigate any future risk.
But despite bearing the brunt of additional stress on their books and higher provisioning on their earnings, private sector banks have managed to snatch market share from public sector lenders this quarter. In a report published on Thursday, HSBC Securities and Capital Markets said HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank and YES Bank have loan market share ranging between 1.5% and 6% each.
“The bottom line is that the polarization in growth and profitability between private and public sector banks is likely to continue, as stress factors plaguing public sector banks appear unrelenting,” HSBC Securities said.
Among the above-mentioned banks, HDFC Bank was the biggest gainer of market share with an incremental loan market share of 14% as against its market share of 6%.
Other banks such as IndusInd Bank and YES Bank too reported similar trends in their market share. The brokerage said much of the incremental share was coming from wholesale banking clients, particularly large corporate credit.
As much of these large corporate loans are higher rated, the brokerage said this would help banks bring down their costs of credit as a result of more higher-rated loans in the mix.
Private sector banks also reported healthy growth in current accounts and savings account, possibly on account of gaining market share from public sector banks and their own increasing branch presence.
“As we expect, these trends to continue given the multiple pressures faced by public sector banks – including asset quality stresses, stresses linked to potential consolidation within public sector banks, anticipated wage hikes expected in November 2017 and IFRS-related pressures. This market share shift should continue with continued migration of corporate credit to the private banks, especially the higher-rated credits,” HSBC Securities said.