Bad loan respite for 30 banks, GNPA declines by Rs 103 bn in 2 quarters

Asset quality is on the mend for banks.  In two consecutive quarters, gross non-performing assets of banks have declined, in the second quarter 2018-19 by Rs 103 billion for 30 banks that have announced their results. 

However, the extent of the decline was small compared to Rs 173 billion in the first quarter ended June 2018 for the 30 banks, according to BS Research analysis. 

Bankers said the asset quality cycle had turned for better, reflecting the effect of repayments after a rigorous follow up, a one-time settlement and sales of loan parcels to asset reconstruction companies (ARCs). 

Banks have also written off NPAs, for which 100 per cent provision has been made. 

Many companies which were treated as bad loans earlier have begun to show improvement and have been upgraded to the standard asset category. So there is reason to believe the asset quality cycle has improved, bankers said.

Ramesh Singh, executive director, Dena Bank, said resolution in some corporate accounts cases in sectors like steel had reduced the outstanding stock of bad loans. 

More such resolutions of higher amounts (Rs 500 billion per account) are expected in the third and fourth quarters. This will further reduce outstanding stocks of gross non-performing assets.

State Bank of India’s asset quality profile showed improvement in Q2. 

The bank's gross NPAs (GNPAs) declined sequentially to 9.95 per cent (Rs 2.05 trillion) in Q2FY19 from 10.69 per cent (Rs 2.12 trillion) at the end of Q1FY19. 

Private lender ICICI Bank’s gross non-performing asset (GNPA) ratio for the second quarter stood at 8.54 per cent and was better than the previous quarter’s GNPA ratio of 8.81 per cent. 

Similar was the case with public sector lender Bank of Baroda (BoB). 

BoB’s gross NPAs declined sequentially to 11.78 per cent (Rs 551.21 billion) for Q2FY19 from 12.46 per cent (Rs 558.74 billion) at the end of Q1FY19. 

Sounding a note of caution on asset quality, a senior public-sector bank executive said the bottoming out of the cycle did not mean that slippages would not happen. 

Some accounts may become non-performing or show signs of stress due to adverse business conditions. The scale of such slippages is expected to be less in coming quarters. The burden of provisions and contingencies, predominantly for NPAs, also reduced for 30 banks them in Q2FY19 over Q1FY19. In Q2FY19 they set aside Rs 507 billion as provisions and contingencies, lower than the Rs 576 billion in the first quarter.  

SBI, the country’s largest lender, saw its bad provision dipping to Rs 101.8 billion in Q2 from Rs 130.38 billion in Q1FY19. 

For BoB, the provision for NPAs at Rs 14.67 billion was at a nine-quarter low.  

In the first quarter it had made provision of Rs 17.59 billion. 

In the case of ICICI Bank, the provision for the September quarter stood at nearly Rs 40 billion, compared to the Rs 45 billion a year-ago and nearly Rs 60 billion in the first quarter.