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For some large private lenders, such as ICICI Bank and Axis Bank, asset quality has worsened in the last one year.
The latest December quarter results continue to highlight the persisting bad loan issue for both banks.
While both saw a sequential decline in the addition of bad loans, the pain appears far from over.
For ICICI Bank, slippages fell to about ₹7,000 crore in the December quarter from around ₹8,000 crore in the September quarter — still a notable rise in bad loans.
With this, the bank’s gross non-performing assets (GNPAs) have gone up to 7.9 per cent of loans from 6.8 per cent in the September quarter.
Watch-listICICI Bank and Axis Bank, which have a relatively higher exposure to troubled sectors, such as power and iron and steel, had set up a watch-list of stressed corporate accounts; ICICI Bank’s list relates to companies internally rated as below investment grade in key sectors.
The chunk of the corporate and SME slippages (just as in the case of Axis Bank) has come from beyond this watch-list for ICICI Bank in the last couple of quarters.
The December quarter was no different.
About 75 per cent of the corporate and SME slippages (around ₹6,600 crore) came from the watch-list and restructured accounts. The bank had outstanding accounts of around ₹44,065 crore at the end of March 2016 under the watch-list.
This has now shrunk to around ₹27,536 crore as of December 2016.
More pain likelyNonetheless, given that chunk of the reduction (around ₹12,000 crore) in these accounts have happened from slippages to NPAs, the bank can see more pain in the coming quarters from these stressed accounts.
While one-off profit — on sale of shareholding in ICICI Life in the September quarter and December quarter of last year — has to some extent impacted the growth in net profit for the latest December quarter (shrinking 19 per cent year-on-year), weak core net interest income is a concern.
Net interest income fell 1.7 per cent y-o-y, mainly on account of reversal of interest income on NPAs.
Overall loan growth (including overseas loans) stood at a muted 5 per cent, primarily due to maturing of loans against FCNR to the tune of $870 million.
On the domestic front, loans grew 12 per cent y-o-y, lower than the 17.5 per cent in HDFC Bank’s domestic loans in the December quarter.
ICICI Bank, however, delivered a healthy growth of 18 per cent in retail loans. The retail portfolio constituted about 49 per cent of loans as of December 2016, compared with 44 per cent last year.
This is in line with the bank’s calibrated approach to lending to the corporate sector, as was indicated in the beginning of this fiscal.
Demonetisation, as in the case of other banks, has led to good accretion of current account and savings account (CASA) deposits.
Savings deposits grew 30 per cent y-o-y in the December quarter.
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