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 ₹6.5-odd lakh crore of bad loans in the banking system, private sector banks now hold about 14 per cent. Their share in total NPAs was around 10.6 per cent a year ago. Over the past three quarters, gross non-performing assets for private sector banks, has been growing (on a year on year basis) at a scorching pace of 60-100 per cent.
For public sector banks 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, PSU Banks have reported a much lower 21 per cent rise in bad loans.
Biggies drag performance
Two large banks -- ICICI Bank and Axis Bank -- have been the key reason for the gloomier asset quality picture for private sector banks. Together constituting nearly 70 per cent of the total NPAs of all private sector banks, these 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-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 (the latest March quarter slippages), 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 year ago) to ₹21,200 crore as of March 2017.
High level of divergence in asset classification and provisioning from RBI’s norms (pertaining to the 2016 fiscal), has also been a concern for private banks. Axis Bank stated that loans to the tune of ₹9,478 crore, according to RBI, should have been declared as NPAs in the FY16 fiscal itself; the bank had reported gross NPAs of ₹6,087 crore as on March 2016. As per 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 worth ₹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.
PSU banks still in the woods
While the pace of slippages have somewhat slowed for PSU banks, their asset quality woes are far from over. The existing large bad loan book could result in rise in provisioning in the coming quarters, despite moderating slippages.
The three large state-owned banks’ latest March quarter results evince the high level of stress.
PNB’s gross non-performing assets are a steep 12.5 per cent of loans at about ₹55,370 crore. To put these numbers in perspective, PNB’s bad loan book is now nearly half that of the total loan outstanding book of mid-sized private sector banks such as IndusInd Bank. In fact, had it not been for the one-off adjustment in pension expenses to the tune of around ₹2,000 crore, the bank would have slipped into the red, reporting losses of about ₹700 crore for the FY17 fiscal.
Bank of Baroda’s slippages remained elevated at ₹4,100-odd crore in the latest March quarter as well. The bank’s stressed assets (GNPAs + restructured loans) are 13-odd per cent, worrisome for a bank its size.
Post-merger with its five associate banks, SBI’s consolidated picture on asset quality, remains worrisome. On a 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 about ₹5,000-7,000 crore.
For FY17, while SBI’s (standalone) gross slippages stood at about ₹43,300 crore, reports suggest that the tally for the associate banks would have been much higher, at over ₹60,000 crore. SBI has revised its watchlist for expected slippage during FY18 at ₹32,400 crore (about ₹10,000 crore from associate banks)