Banks may be apprehending larger slippages in the quarters ahead, with provisions made by a clutch of private sector banks during FY19 rising nearly 13% year-on-year (y-o-y), even as the value of gross non-performing assets (NPAs) remained nearly flat at the end of March 2019.
The value of provisions made by the 16 private sector banks that have so far reported their March quarter results stood at Rs 54,447 crore in FY19, up from Rs 48,298 crore in FY18, show data compiled by FE. On the other hand, gross NPAs at the same set of banks inched up only 0.7% between March 2018 and March 2019 to Rs 1.25 lakh crore.
Much of the stress is being anticipated in the accounts of the ADAG group, the Essel group, some entities from the Infrastructure Leasing & Financial Services (IL&FS) group and Jet Airways. The stress in agri loans is also likely to weigh on the books of some lenders, such as HDFC Bank and ICICI Bank.
IDFC First Bank saw the largest jump in provisions — a whopping 555% y-o-y — to `1,546 crore in FY19. Of this, `267 crore, or 15%, is towards likely losses in the bank’s investments in bonds of a large financial services group and a large housing finance company, which were downgraded recently even as they continue to be standard on the bank’s books. Understood to be ADAG group firms, these two entities owe IDFC First Bank `1,784 crore between them in bond payments.
Yes Bank saw provisions shooting up 272% y-o-y to `5,778 crore for FY19. In Q4, total provisions were to the tune of `3,660 crore, of which `2,100 crore was contingency provisions.
Managing director and chief executive officer Ravneet Gill told analysts that the additional cover was in view of the evolving situation of liquidity tightness in the non-banking financial company (NBFC) space. “As we know that over the last six to eight months there has been a significant dislocation in the Indian financial services market, stemming from the dislocation in the NBFC space, mutual funds, and then a lot of related issues, which led to significant risk aversion and liquidity became a major concern,” Gill told analysts, adding, “It definitely had an impact on our credit portfolio as well.” The bank has already recognised an airline account as NPA in Q4, widely believed to be that of Jet Airways.
ICICI Bank, the second-largest private lender by assets, recorded a nearly 14% y-o-y increase in provisions in FY19, even as gross NPAs dropped 14% between March 2018 and March 2019 to `46,292 crore. After the bank’s Q4FY19 results, chief financial officer Rakesh Jha told analysts that on its `17,525-crore standard portfolio of borrowers rated BB and below, it is holding provisions worth `12,741 crore.
While analysts say ICICI Bank is unlikely to take a fresh provisioning hit because of Jet Airways, there could be stress emerging in its retail portfolio. “Gross slippages is expected to be higher in Q1 and Q3 due to seasonality in the agriculture loan book,” analysts at Jefferies wrote after ICICI Bank’s results.
HDFC Bank, too, has made contingency provisions, anticipating repayment pressure in its agri book in the June quarter of FY20. In a conference call with analysts after HDFC Bank’s March quarter results, CFO Sashidhar Jagdishan said the bank has been providing for agri-related delinquencies for the last few quarters. “So, there is a bit of a contingent trade provision that we have created for that, anticipating a bit of a spurt in the agri delinquencies in June 2019,” he said. “We created a portion of that in December 2018; so we have carried that and we have added some more in March 2019.”