Banks Get No Respite as Q3 Slippages Increase
In Economics there is a saying,” With Growth comes Challenges”; as for Indian banks, which reported healthy growth numbers in recent quarters, still be affected by high slippages, especially from the corporate loan book.
State Bank of India saw its slippages – new bad loans – almost doubled sequentially to Rs 16,525 crore. It had reported slippages of Rs 8,800 crore within the September quarter. Its slippage ratio grew to 2.94% from 0.87% on a yearly basis. Likewise, Axis Bank recognized slippages of Rs 6,214 crore within the December quarter, compared with Rs 4,983 crore within the 2nd quarter and Rs 3,746 crore in the year-earlier quarter.
Kotak Mahindra Bank put new additions in bad loans at Rs 1,062 crore within the third quarter. Many other top banks, including depository financial organization of India, Axis Bank, Bank of Baroda, Punjab full-service bank and Bank of India all reported a sharp rise in slippages within the December quarter, signaling that trouble remains to brew on the asset quality front.
Following a 3-way merger, Bank of Baroda’s slippages grew sharply to Rs 10,387 crore for the December quarter after it absorbed Dena Bank and Vijaya Bank. Another state-run lender, Punjab full-service bank, also reported elevated fresh bad loans at Rs 7,400 crore but said that lumpy corporate stress formation is actually behind it. Banking sector experts feel that while the strain formation is visible, fresh additions in bad loans are factored in. As “This quarter, banks have reported lumpy slippages, especially from the corporate sector, but the brilliant side is that these are largely from known accounts like DHFL, CCD, Cox & Kings, etc., therefore the idea is that slippages could peak soon,” added Rajiv Mehta, Analyst of Yes Securities.
A recent India Rating report said the proportion of stressed corporate assets declined to 17.9% of total bank credit at end-September 2019 versus 19.3% within an equivalent period last year. This fall was totally on account of write-offs of about 1.8% of total bank credit, improvements in credit profiles of accounts amounting to 0.4% of total bank credit and thus the bottom effect on account of 8.8% annual credit growth. But despite data indicating that asset quality issues have moderated, fresh additions have continued.
“These are partially offset by the impact of additives of about 2.4% to stressed assets from both corporates and non-banking financial companies,” the report noted. “While we believe the majority of stressed corporates have undergone rapid credit migration within the previous few years, the aversion of bankers to need on additional risk could end in additional slippages than estimated.” as per the latest India Rating Reports.
“Progressively, quarterly you see new bullets and these are within the realm of unknown. You don’t expect these bullets to be shot but they’re and it’s not a sectoral problem, it’s an entity level problem,” said Dipak Gupta, joint MD, Kotak Mahindra Bank. “The approach is I want to maneuver cautiously. Once you see the road ahead is clear, then you’ll move fast.”
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