News Analysis

Bad loans growth in private banks outpaces PSBs’ for third quarter in a row

Radhika Merwin BL Research Bureau | Updated on January 11, 2018 Published on May 22, 2017



Public sector banks not yet out of the woods

Private sector banks have been busy playing catch-up, adding bad loans at a much faster pace than their public sector counterparts over the past three quarters.

Of the around ₹6.5-lakh crore bad loans in the banking system, private sector banks now hold about 14 per cent. Their share in total non-performing assets (NPAs) was around 10.6 per cent a year ago.

Over the past three quarters, gross NPAs for private sector banks have been growing (on a year-on-year basis) at a scorching 60-100 per cent.

For public sector banks (PSBs), on the other hand, after additions to bad loans peaked in the March to September 2016 quarter (after the RBI’s AQR exercise), growth in bad loans have moderated.

Even as private sector banks reported a 65 per cent y-o-y jump in GNPAs during the latest March quarter, PSBs have reported a much lower 21 per cent rise. But that does not mean that the PSBs are on a firmer footing.

Biggies drag performance

Two large banks — ICICI Bank and Axis Bank — are key to the gloomier asset quality picture for private sector banks. Together constituting nearly 70 per cent of the total NPAs of all private banks, the two banks’ relatively higher exposure to stressed sectors such as power and iron and steel has led to sharp rise in bad loans.

For ICICI Bank, bad loans stand at around ₹42,500 crore as of March 2017, one-and-a-half times its bad loan book a year ago.

While slippages have moderated after peaking in the June 2016 quarter, at nearly ₹6,000 crore in the latest March quarter, slippages are still elevated compared to the quarterly additions of ₹1,600-2,200 crore in the past.

For Axis Bank, bad loans more than trebled (from the year ago) to ₹21,200 crore as of March 2017.

High level of divergence from RBI’s norms on asset classification and provisioning (pertaining to FY16) has also been a concern for private banks.

Axis Bank stated that loans to the tune of ₹9,478 crore, according to the RBI, should have been declared as NPAs in the FY16 itself; the bank had reported GNPAs of ₹6,087 crore as on March 2016.

According to ICICI Bank management, the RBI assessed incremental bad loans to the tune of ₹5,100 crore as part of this exercise.

YES Bank, in its annual report, showed GNPAs of ₹748 crore in FY16.

However, as per the RBI’s assessment, the bank’s bad loans were ₹4,925 crore — a divergence of ₹4,176 crore.

PSBs still in the woods

While the pace of slippages has somewhat slowed at PSBs, their asset quality woes are far from over. The existing large bad loan book could result in a rise in provisioning in the coming quarters, despite moderating slippages.

The three large State-owned banks’ latest March quarter results reflect the high level of stress.

PNB’s GNPAs are a steep 12.5 per cent of loans at about ₹55,370 crore. To put these numbers in perspective, PNB’s bad loans are now nearly half that of the total loan outstanding of mid-sized private sector banks such as IndusInd Bank.

In fact, had it not been for the one-off adjustment in pension expenses of around ₹2,000 crore, the bank would have slipped into the red, reporting losses of about ₹700 crore for FY17.

Bank of Baroda’s slippages remained elevated at around ₹4,100 crore in the latest March quarter as well. The bank’s stressed assets (GNPAs plus restructured loans) are 13-odd per cent, worrisome for a bank its size.

Post the merger of five associate banks with itself , SBI’s consolidated picture on asset quality remains a cause for concern.

On standalone basis too, SBI’s slippages remain high at about ₹10,000 crore. Three to four quarters prior to the AQR, SBI’s quarterly slippages stood at ₹5,000-7,000 crore.

For FY17, while SBI’s (standalone) gross slippages stood at about ₹43,300 crore, some brokerage reports suggest that the tally for the associate banks would have been much higher — at over ₹60,000 crore.

SBI has revised its watch-list for expected slippage during FY18 at ₹32,400 crore (about ₹10,000 crore from associate banks).

Published on May 22, 2017
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