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With most banks reporting a decline in bad loans in the second quarter of the fiscal, a new report by CARE Ratings says that the NPA cycle of most lenders may have now peaked and the recognition issue addressed.
“The overall picture is mixed and there are signs that for the majority of these banks, the worst of the NPA issue is over, and that the ratios could come down in the coming quarters,” said CARE Ratings on Friday, adding that the restrictions on lending on PCA banks also helped improve the overall performance to some extent.
NPA ratio peaked in the fourth quarter of 2017-18 at 10.16 per cent, which was when the highest quantum of bad loans was recognised, according to the study on trends in movements in NPA.
Since then, it has moderated and was down to 9.41 per cent in the second quarter of the fiscal, according to CARE Ratings.
Provisioning
Similarly, while provisions had peaked in the fourth quarter of the fiscal at ₹1.23 lakh crore with almost all banks witnessing an increase over the third quarter, the situation seems to have changed in the current fiscal. Provisions in the first quarter of 2018-19 came down to ₹57,610 crore and to 50,714 crore in the second quarter of the fiscal, the study of 30 banks found.
In the case of 13 banks, including State Bank of India and ICICI Bank, the NPA ratio has declined in the last two or more successive quarters.
Similarly, for eight banks, including Bank of Baroda and Bank of Maharashtra, the ratio for the July to September quarter 2018 was lower than that of the first quarter, the report said, adding that it would have to be monitored to see whether the end of the NPA cycle has reached.
“While it cannot be said with any certainty that declining NPA ratios in Q2-FY19 indicate a turnaround, a thumb rule can be that two successive quarters of declining NPA ratio can give confidence that the ratio will not increase in the coming quarters,” the report said.
Among the new private banks, HDFC Bank (1.33 per cent), IndusInd Bank (1.09 per cent), Kotak Mahindra Bank (2.15 per cent) and RBL Bank (1.4 per cent) have the lowest NPA ratios, which have been under control and were declining over the quarters.
Meanwhile, Axis Bank and ICICI Bank have reduced their NPAs in the last two quarters.
In the case of the 12 public sector lenders, only two have NPA ratio of less than 10 per cent: Vijaya Bank with 5.86 per cent and SBI at 9.95 per cent.
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