)
Bad loan ratios might have remained steady for most private banks in the October-December 2014 quarter, but asset quality worries are still not over for these lenders. Bankers and industry analysts caution there could be a spike in loan restructuring cases in the current quarter, which will worsen the health of assets.
“It is too early to say that the worst (in terms of asset quality deterioration) is over for private banks. They are relatively better placed than public sector banks because of their focus on the retail segment, where asset quality risks are lower. But there could be some front-loading on the loan restructuring front in the fourth quarter, which could stress the credit quality. A lot will depend on a pick-up in economic growth and improvement in corporate profitability,” said Saday Sinha, banking analyst with Kotak Securities.
Private lenders, including Axis Bank, Kotak Mahindra Bank, IndusInd Bank and DCB Bank, have either improved or kept their non-performing loan ratios steady.
However, bankers remain wary. “The total stress addition might be lower than what we have guided, but we will continue with our guidance. Restructuring norms will be changing from the next financial year. Therefore, we expect more stress additions in the current quarter,” said Sanjeev K Gupta, executive director for corporate centre at Axis Bank. The third-largest private bank in India saw its gross and net bad loan ratios stay unchanged sequentially at 1.34 per cent and 0.44 per cent, respectively, in the October-December 2014 period.
While DCB Bank improved its non-performing asset ratios, its CEO Murali M Natrajan said improvement in the macroeconomic environment was essential to ebb bad loan worries. “We are confident of the quality of our retail mortgages, SME (small & medium enterprises)-MSME (micro, small and medium enterprises) and agri-inclusive banking portfolios. On the corporate side, unless the external environment improves, challenges will remain,” he said.
Uday Sareen, deputy CEO and CEO-designate at ING Vysya Bank, said while fresh bad loan additions had slowed, it was too early to conclude pains were over. The private lender's gross and net bad loan ratios deteriorated by 27 and 24 basis points, respectively, on a quarter-on-quarter basis.
“It is too early to say that the worst (in terms of asset quality deterioration) is over for private banks. They are relatively better placed than public sector banks because of their focus on the retail segment, where asset quality risks are lower. But there could be some front-loading on the loan restructuring front in the fourth quarter, which could stress the credit quality. A lot will depend on a pick-up in economic growth and improvement in corporate profitability,” said Saday Sinha, banking analyst with Kotak Securities.
Private lenders, including Axis Bank, Kotak Mahindra Bank, IndusInd Bank and DCB Bank, have either improved or kept their non-performing loan ratios steady.
However, bankers remain wary. “The total stress addition might be lower than what we have guided, but we will continue with our guidance. Restructuring norms will be changing from the next financial year. Therefore, we expect more stress additions in the current quarter,” said Sanjeev K Gupta, executive director for corporate centre at Axis Bank. The third-largest private bank in India saw its gross and net bad loan ratios stay unchanged sequentially at 1.34 per cent and 0.44 per cent, respectively, in the October-December 2014 period.
While DCB Bank improved its non-performing asset ratios, its CEO Murali M Natrajan said improvement in the macroeconomic environment was essential to ebb bad loan worries. “We are confident of the quality of our retail mortgages, SME (small & medium enterprises)-MSME (micro, small and medium enterprises) and agri-inclusive banking portfolios. On the corporate side, unless the external environment improves, challenges will remain,” he said.
Uday Sareen, deputy CEO and CEO-designate at ING Vysya Bank, said while fresh bad loan additions had slowed, it was too early to conclude pains were over. The private lender's gross and net bad loan ratios deteriorated by 27 and 24 basis points, respectively, on a quarter-on-quarter basis.
According to analysts, private lenders such as Federal Bank and South Indian Bank, have not been able to stem credit quality deterioration last quarter. Besides, India’s top two private banks – ICICI Bank and HDFC Bank – are yet to declare their third quarter earnings.
“It is not as if slippages have been coming down drastically for private banks. But these banks are able to make adequate provisions to keep net non-performing asset ratios stable. Also, in the fourth quarter, we expect restructuring of loans to be higher,” said Vaibhav Agrawal, vice-president research for banking at Angel Broking.
A few bankers, however, remained optimistic. “Asset quality outlook has got better in recent months... If GDP (gross domestic product) growth picks up to 6.5 per cent or more, it will bring further relief on that front,” said Jaideep Iyer, group president for financial management at YES Bank.
