Private sector banks see rise in bad loans

Strong growth in advances & deposits continue

Though private sector banks continued to report strong growth on several parameters, including advances and deposits in the July-September quarter, a majority of these witnessed some pressure on asset quality with fresh non-performing asset (NPA) additions showing an increase.

For instance, ICICI Bank saw its gross NPAs rising to 3.77 per cent from 3.12 per cent a year ago. The net NPA ratio was 1.65 per cent as of September-end, against 1.09 per cent a year ago. Similarly, YES Bank’s gross NPA also increased to 0.61 per cent in the quarter ended September from 0.36 per cent in the corresponding quarter a year ago. Net NPA also increased to 0.20 per cent from 0.09 per cent in the quarter ended September. Sequentially, too, these were up, but the Street isn’t worried.

“Fresh NPA additions were high, rising 39.6 per cent q-o-q (quarter-on-quarter) to Rs 6,980 crore (2.2 per cent of loans), with NPA coverage down 81 basis points (bps) q-o-q to 60.2 per cent. For most of the large private sector banks, management guidance was encouraging for asset quality, with fresh defaults in FY16 expected to be lower than or similar to that seen in FY15,” said a report by Emkay Research.

Analysts say though there is a spike in the ratio of bad loans, it wasn’t a cause for alarm and considering the provision coverage ratio of private banks was fairly high, these remain much better insulated than public sector lenders.

The trend in net interest margin (NIM), a key indicator of a bank’s profitability, though, was mixed with two reporting an increase and three a decline (see table). The reduction in base rate, which several lenders had undertaken in the previous quarter, was largely responsible for the pressure on NIMs.
 

Going forward, the banks may see some more pressure on NIMs if the lending rates come down further. “In the third quarter of this financial year, we may see some pressure on margin though it may get a cushion because of the falling deposit rates. But across, we may see margins come down by 5-10 bps,” said Vaibhav Agrawal of Angel Broking.

However, the credit and deposit growth of private lenders continues to grow ahead of the system. Reserve Bank of India data suggest credit in the system continued to grow at a sluggish pace of below 10 per cent whereas deposits grew by 11-12 per cent. But most private sector banks witnessed a credit and deposit growth of above 15 per cent. Analysts expect the trend of private banks outpacing the system growth to continue even in the coming quarters.