Asset quality deterioration moderates in Q3

Gross NPA only grew by 3.38% in Q3 vs 15.01% in Q2

After witnessing a sharp rise in bad loans for 12 months the third quarter of may have been a turning point for banks as pace of slippages moderated on gradual improvement in liquidity for companies and business climate.

The performance analysis of 31 banks, who have announced Q3 results, shows that sequentially the gross non-performing assets grew by only 3.38% in Q3 as against 15.01% in Q2 and 10.2% in Q1. (see the tablegraph).

Bankers said the major issue across industries has been of tight liquidity for companies. Things have improved marginally on liquidity bringing some relief to stretched balance sheets. The dues were stuck for companies in power sector and construction, threatening to make many accounts NPAs.

The clear picture will emerge over emerge over next two weeks as three large public sector banks – State Bank of India, Bank of Baroda and Bank, and Canara Bank – are yet to declare their Q3 results.

Senior State Bank of India official said the third quarter (October-December 2012) has been relatively better than huge rise in slippages in the first and second quarter which were even beyond its initial estimates. While the portfolio of outstanding NPAs will continue to growth, the pace of additions is expected reduce.

Vibha Batra, senior vice president and co-head -financial sector ratings, at ICRA said the phase of high level slippages is over. From here onwards the pace of deterioration should reduce. Echoing her sentiments IDBI Bank executive director R K Bansal said the third quarter was not as bad as previous quarter. Though slippages continue, up-gradations were also substantial.

When it comes to outlook the fourth quarter (ending March 2013) and beyond, bankers sound a note of caution. The scenario is changing for better but things will look up gradually.

A senior executive a large public sector bank said the kitty of outstanding NPAs will continue to grow, albeit at slow pace, as economy and business environment are just about showing signs of coming out elongated bad patch.

There are still some high risk sectors like power, Iron and steel, and too an extent textiles. Iron and Steel units have been hit by problems in sourcing raw materials and plus dip in demand amid slowdown.

The likely trajectory that the NPA percentage takes would also hinge on the economic environment as well as the resolution of fuel availability issues in power generation and structural reforms in power distribution, rating agency ICRA said in a note.