Bad loans rule narrative as private banks declare September quarter results

Continuing increase in gross NPAs indicates more pain is in store, belying optimism that the worst is over for Indian banks struggling with deteriorating asset quality


India’s third-largest private bank Axis Bank reported a 71% quarter-on-quarter rise in gross bad loans and indicated that more pain is in store. Photo: Bloomberg
India’s third-largest private bank Axis Bank reported a 71% quarter-on-quarter rise in gross bad loans and indicated that more pain is in store. Photo: Bloomberg

Mumbai: Axis Bank Ltd, India’s third largest private lender, reported a 71% quarter-on-quarter rise in gross bad loans and indicated that more pain is in store, belying optimism that the worst is over for Indian banks struggling with deteriorating asset quality.

The rise was primarily because Rs7,288 crore worth of assets from the bank’s so-called watch list turned bad in the three months ended September.

While announcing its March quarter results, the bank had announced that it had created a watch list with assets worth Rs22,000 crore, which are at a high risk of turning bad. About 39% has already turned sour.

The bank now expects slippages from the watch list to rise above the 60% guidance it had given earlier, citing the operating environment and weak resolution mechanism.

“It seems the expectation that we will get some respite from asset quality issues during this quarter may not be right,” said an analyst with a domestic brokerage, requesting anonymity as he isn’t allowed to talk to reporters. “The RBI (Reserve Bank of India) governor’s point about recognition of bad loans being over and resolution to be the focus going ahead may not be right.”

Axis Bank’s gross non-performing asset (NPA) ratio was at 4.17% at the end of September. The slippages resulted in Rs3,623 crore in provisions, which reduced net profit to Rs319 crore, an 83% decline from a year ago.

Smaller rival IDBI Bank reported a 10% sequential increase in its large bad loans book. The state-run lender reported a gross NPA ratio of 13.05% at the end of September compared with 11.92% in the preceding three months. The bank’s poor asset quality was compounded by poor operational performance. Net interest income, or the core income a bank earns by giving loans, fell 0.4% from a year earlier. That, coupled with a rise in provisions led to IDBI Bank’s net profit halving to Rs55.52 crore.

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IDFC Bank, which started operations in October last year, reported a gross NPA ratio of 6%, marginally lower than 6.1% reported in the June quarter. The bank reported a net profit of Rs387.8 crore, an increase of 46% from a quarter ago. The bank didn’t report its year-ago numbers.

India’s largest private sector lender, HDFC Bank Ltd, though, reported a steady 20% net profit growth, boosted by higher net interest income and other income.

Net profit for the quarter rose to Rs3,455.33 crore. Gross NPAs rose 3.01% to Rs5,069.04 crore at the end of September and gross bad loans ratio stood at 1.02%, little changed from a quarter ago.

ALSO READ | Axis Bank’s watch list of maladies

However, the bank’s results did not escape the slowdown in the corporate loan segment. According to Paresh Sukthankar, deputy managing director, HDFC Bank, the wholesale loan book, which grew 14% from a year ago, lagged the retail loan growth of 21.5% due to higher repayment of working capital loans over the last six months.

Similarly, Axis Bank’s large corporate loan book grew at a slower-than-expected 14%, mostly from refinancing loans and not from the underlying demand from large firms.

Kotak Mahindra Bank Ltd, too, reported a 27.7% increase in its consolidated net profit to Rs1,194.96 crore on higher net interest income and other income. It had a gross bad loans ratio of 2.18%.

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