The combined gross non-performing assets (GNPAs) for a clutch of 11 private sector banks have crossed R50,000 crore at the end of June.
The country’s biggest private sector lender, ICICI Bank, accounts for about half of this with GNPAs of R27,194 crore.
Excluding ICICI Bank, GNPAs as a share of the combined loan book of ten lenders rose to 1.73% at the end of the first quarter from 1.33% a year ago, and 1.43% at the end of March 2016. Management commentary, post results announcements, suggested that the deterioration in the asset quality may not be over.
Chanda Kochhar, MD & CEO of ICICI Bank, for instance, observed it was difficult to give guidance on how much of the bank’s ‘watch list’ might slip into NPAs. “We continue to work on the resolution of most of these large exposures. While some promoters may be finalising the sale of their major units, these transactions need to be consummated and need various approvals. Our focus will be to continue to resolve as much of this exposure as possible but it is difficult to give a guidance for resolution or for slippage,” Kochhar said.
At the end of Q4FY16, the bank had created a ‘watch list’ of advances amounting to R44,065 crore. Of that, according to the bank, R4,559 crore worth of loans slipped into NPAs in Q1FY17. The ‘watch list’ stood at R38,723 crore at the end of the quarter ended June.
Jairam Sridharan, chief financial officer at Axis Bank, estimates around 60% of the assets on the watch list might slip into NPAs even though the operating environment for some businesses had improved somewhat in the last few months. A large part of the slippages of R3,638 crore had come from the watch list, Sridharan said. Slippages from the corporate segment constituted R2,911 crore, of which R2,680 crore was from the watch list.
“Watch list slippages made up 92% of the slippages from the corporate lending segment,” Sridharan said in a conference call. At the end of the June quarter, Axis Bank’s ‘watch list’ stood at R20, 295 crore.
Analysts at Jefferies lowered their earnings per share estimates for ICICI Bank between FY17 and FY19 by 3-5% factoring in higher credit costs. “We expect September quarter to be even worse operationally and an even higher NPL recognition,” they noted.
Analysts at HSBC Global Research highlighted the sharp rise in Axis Bank’s credit costs from 74 basis points to 213 bps on the back of slippages rising from 1.9% to 4.3%, the highest in at least six years.