The top ten lenders of the country have recently reported that there are slippages of over Rs 1 lakh crore in the first half of the current financial year, which shows that the worst is not over yet in terms of stress in asset quality.
The economic slowdown and the delay in resolution of stressed will push the stressed loans into the NOA segment.
In the month of April-september, the top ten banks have issued around Rs 1 lakh crore loans to the NPAs. More than the 90,000 crore loans were issued in the first six months of the last financial year.
There were many banks who performed better in second quarter than the first quarter in this financial year, still there were slippages. The Banks such as Axis Bank and Kotak Mahindra Bank are expected higher slippages going ahead.
“Almost all slippages have come from the previously disclosed stressed accounts. Moreover, the current environment is not enabling a quick rundown. So to that extent, we expect slippages from this stock to remain elevated,” Amitabh Chaudhry, MD & CEO, Axis Bank said in the earnings call.
The extra credit costs and the high provisions of banks are all because of the delays in finding a resolution for this.
“We do believe that the credit costs are going to be a little higher than what we had bargained for at the beginning of the year,” Uday Kotak, MD, Kotak Mahindra Bank said in an earnings call. He also said that the bank is expecting the credit costs to be around 60 basis points.
The credit cost of the bank got increased to 62 basis points in the first six months of this financial year in comparison to the same period of last year when it was just 51 basis points.
The concerns regarding the asset quality of state bank of India is still there, despite of the fact that it has reported lower slippages in the second quarter.
“Nevertheless, asset quality is improving but the recent trend of rating downgrade could add to the slippages for two quarters. Despite the asset quality improving during the quarter, bank’s exposure to telecom companies, few stressed housing finance companies and power exposure would be key risks for fresh slippages,” said Jaikishan Parmar, research analyst, Angel Broking.
If we consider asset quality the Indian banking sector is still not in a good condition though it has frameworks like Insolvency and Bankruptcy Code (IBC) and Inter-creditor agreement (ICA).
“Resolutions appear slow both within the IBA and ICA frameworks. While slippages appear to have plateaued for many banks, there is some apprehension of larger-ticket slippages (e.g. in telecom sector) and also if IBC resolutions are delayed,” said Sachin Sheth, research analyst, ICICI Securities.
Banks are trying to recover the loans as a resolution of this to get relief of these slippages in the second half of this financial year.