Asset quality of top private sector banks witnessed a slight improvement sequentially in the September quarter. This was due to the banks’ effort in curtailing fresh slippages, improved collections, better recoveries from written-off accounts and the regulatory support in the form of loan restructuring.

For instance, gross non-performing assets (GNPAs) of India's largest private sector lender HDFC Bank fell to ₹16,346 crore during July-September quarter against ₹17,099 crore in the first quarter of the current fiscal. The bank also made lesser provisions and contingencies at ₹3,924.70 crore during the quarter compared to ₹4,830.84 crore in the June quarter. GNPA, as a percentage of gross advances, also fell to 1.35 per cent as of September from 1.47 per cent in the June quarter. It was 1.08 per cent in the same quarter, a year ago.

On a year-on-year (y-o-y) basis, the bank’s GNPA was higher than ₹11,305 crore recorded in the September quarter. However, the y-o-y figures are strictly not comparable since the Supreme Court on September 3, 2020, made an interim stay on banks from classifying loans that were standard as on August 31 as NPAs (non-performing assets). Most banks have reported their NPA figures under proforma approach for September 2020 and December 2020 quarters while maintaining prudent contingent provisions. On March 23, 2021, the Supreme Court lifted the interim stay on banks.

ICICI Bank reported its highest ever quarterly profit on standalone basis at ₹5,511 crore for the September quarter aided by healthy loan growth and drop in bad loans. The bank’s asset quality showed improvement as gross non-performing assets (NPAs) fell to 4.82 per cent of gross advances as of September 30, against 5.15 per cent in the June quarter. Net NPAs (bad loans) too fell to 0.99 per cent from 1.16 per cent sequentially in September quarter.

Similarly, gross and net NPAs of Axis bank showed substantial improvement both on a y-o-y and sequential basis while Kotak Mahindra Bank's also showed improvement in its asset quality in the recent quarter.

GNPAS to rise

In a recent report, Crisil said that GNPAs of banks will rise to 8-9 per cent this fiscal limited by Covid-19 relief measures such as the restructuring dispensation and the Emergency Credit Line Guarantee Scheme (ECLGS). However, it also added that with over 2 per cent of bank credit expected under restructuring by the end of this fiscal, stressed assets — comprising gross NPAs and loan book under restructuring — should touch 10-11 per cent.

“The retail and MSME segments, which together form ~40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around. Stressed assets in these segments are seen rising to 4-5 per cent and 17-18 per cent, respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment,” Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, said in the report.

Retail portfolio

The stress in the retail portfolio is already visible. For instance, HDFC Bank restructured loans worth ₹7,829.48 crore under the Reserve Bank of India’s framework 1.0 for Covid-19 related stress. Out of which, 22 per cent or ₹1,687.02 crore slipped into the NPA category with personal loan slippage alone accounting for ₹1,283.06 crore. The bank also wrote off loans worth ₹857 crore.

However, the stress in the MSME sector seems to be more pronounced for the public sector banks than its private peers. In its Financial Stability Report, the RBI said that despite restructuring, stress in the MSME portfolio of PSBs remain high. While PSBs have actively resorted to restructuring under all the schemes, participation of private banks was significant only in the Covid-19 restructuring scheme offered in August 2020,” the regulator said in July.

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