Growth in bank bad assets slows in third quarter

High inflation likely to increase the risk of defaults, say experts.

Reflecting an improvement in business environment, the pace of addition of non-performing assets (NPAs or bad loans) declined sequentially in the December quarter.

The gross NPAs of listed banks rose by Rs 2,405 crore in the quarter, as against Rs 4,920 crore in the September quarter and Rs 5,115 crore in the quarter before that.

IDBI Bank, a former development finance institution, saw the highest NPA addition of Rs 548.93 crore. New Delhi-based Punjab National Bank followed with Rs 516 crore. However, State Bank of India was able to control its NPAs. Its loans worth Rs 233 crore turned bad during October-December.

Broking house Sharekhan, in its performance review for bank stocks, said private sector banks saw a stable to improving asset quality while public sector banks showed reoccurrence of slippages, albeit at a lower pace. The slippages were mainly contributed by segments like small and medium enterprises and agriculture.

The asset quality is expected to remain stable as slippages (standard assets turning into bad loans) from vulnerable segments like restructured assets and farm sector have already peaked. However, a senior executive with State Bank of India sounded caution, saying the chance of slippage from restructured assets was higher than from standard assets.

The country’s largest lender’s restructured loan portfolio stood at Rs 32,750 crore in December. Of this, loans worth Rs 4,422 crore slipped into the NPA category.

Banks, especially state-owned ones, set aside higher amounts for NPAs in the third quarter. Some like PNB, Corporation Bank and IDBI Bank increased their provisioning. SBI set aside a higher amount in the third quarter, in line with the plan submitted to the Reserve Bank of India to reach an overall provisioning level of 70 per cent by September this year.

Bankers said sectors like real estate and telecom could give a negative surprise in case of an adverse regulatory and macro scenario.

High inflation will also play spoilsport for banks. Prices of food items, energy products and commodities have been rising fast for more than a year. The outlook is they will remain elevated for the next few months. It (high inflation) erodes the repayment capacity of borrowers, especially retail and small and medium enterprises. Loans in these categories could see higher defaults in the coming quarters, said a senior public sector bank executive.