MUMBAI: Indian banks, which reported healthy growth numbers in recent quarters, continue to be plagued by high slippages, especially from the corporate loan book. Top banks, including State Bank of India, Axis BankNSE -0.94 %, Bank of Baroda, Punjab National Bank and Bank of India all reported a sharp rise in slippages in the December quarter, signalling that trouble is still brewing on the asset quality front.
State Bank of India saw its slippages — new bad loans — almost double sequentially to Rs 16,525 crore. It had reported slippages of Rs 8,800 crore in the September quarter. Its slippage ratio rose to 2.94% from 0.87% on an annual basis. Likewise, Axis Bank recognised slippages of Rs 6,214 crore in the December quarter, compared with Rs 4,983 crore in the second quarter and Rs 3,746 crore in year-earlier quarter. Kotak Mahindra BankNSE 0.98 % put new additions in bad loans at Rs 1,062 crore in the third quarter.
Stress Formation Visible
“Progressively, every quarter you see new bullets and these are in the realm of unknown. You don’t expect these bullets to be shot but they are and it’s not a sectoral problem, it’s an entity level problem,” said Dipak Gupta, joint MD, Kotak Mahindra Bank. “The approach is I must move cautiously. Once you see the road ahead is clear, then you can move fast.”
Following a three-way merger, Bank of Baroda’s slippages rose sharply to Rs 10,387 crore for the December quarter after it absorbed Dena Bank and Vijaya Bank. Another state-run lender, Punjab National Bank, also reported elevated fresh bad loans at Rs 7,400 crore but said that lumpy corporate stress formation is largely behind it. Banking sector experts feel that while the stress formation is visible, fresh additions in bad loans have been factored in.
“This quarter, banks have reported lumpy slippages, especially from the corporate sector, but the silver lining is that these are largely from known accounts like DHFLNSE -4.70 %, CCD, Cox & Kings etc., so the assumption is that slippages could peak soon,” said Rajiv Mehta, analyst, Yes Securities.
A recent India Ratings report said the proportion of stressed corporate assets declined to 17.9% of total bank credit at end-September 2019 versus 19.3% in the same period last year. This fall was primarily on account of write-offs of about 1.8% of total bank credit, improvements in credit profiles of accounts amounting to 0.4% of total bank credit and the base effect on account of 8.8% annual credit growth. But despite data indicating that asset quality issues have moderated, fresh additions have continued.
“These have been partially offset by the impact of additions of about 2.4% to stressed assets from both corporates and non-banking financial companies,” the report noted. “While we believe the majority of stressed corporates have undergone rapid credit migration in the last few years, the aversion of bankers to take on additional risk could result in more slippages than estimated.”