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It could be because the market was driven to boredom by banks reporting bad loan divergences now and then. Or the late assessment of fiscal 2016-17 at a time when all eyes are on the performance in 2017-18. Whatever the reason, the market’s somewhat indifferent reaction to IndusInd Bank reporting ₹1,350 crore of bad loan divergences pertaining to 2016-17, comes as a bit of a surprise.
True, with some of the accounts already repaid in full or classified as NPAs before the divergence report, the actual impact of the divergence has been much lower in the latest March quarter. But given that the bank had reported gross NPAs of ₹1,054 crore for 2016-17, divergence amounting to nearly 130 per cent of the reported NPA numbers is a matter of concern. The impact this would have had on the bank’s GNPA ratio in 2016-17 would have been similar to the one seen in the case of Axis Bank – a much bigger bank and a corporate lender.
What’s of concern?
In 2016-17, IndusInd Bank had reported just 0.93 per cent GNPA ratio. However, if one were to take the divergence into account, the GNPA ratio would have been a much higher 2.1 per cent of loans. Considering that the bank’s GNPA has been a maximum of 1 per cent of loans over the past four to five years, the notable spike could have rankled investors.
Axis Bank or YES Bank, which had reported steep bad loan divergences pertaining to 2016-17, in the second quarter of 2017-18, were hammered 7-9 per cent post announcement of results. Most of IndusInd Bank’s divergences reported in the fag end of the fiscal have either been repaid in full or declared as NPAs already by the bank in the last one year, thus reducing the impact of the divergence to a mere ₹186 crore in the March quarter.
Nonetheless, the numbers in terms of spike in GNPA ratio are almost as bad as of its peers. Axis Bank had reported ₹4,867 crore of divergences pertaining to 2016-17, implying a 1.3 percentage points jump in the GNPA ratio than that reported by the bank then; IndusInd Bank’s divergence also indicates a similar 1.2 percentage points increase in its GNPA ratio for 2016-17.
Also, on sequential basis, GNPAs in absolute terms have grown by 14 per cent. Despite a 42 per cent sequential increase in provisions, the coverage ratio has slipped to 56 per cent in the March quarter, from 60 per cent in the December quarter.
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