Bad loans of private banks balloon 62.5% in Q4

PRIYA KANSARA

RBI-mandated review reveals ICICI, Axis have most NPAs; outlook for others better

Mumbai, April 29:  

With the RBI tightening provisioning norms, the bad debt problem is knocking at the doors of private sector banks too. Cumulative gross non-performing assets (NPAs) of leading private sector banks, including ICICI Bank, Axis Bank, HDFC Bank, IndusInd Bank and YES Bank, have surged 62.5 per cent to Rs. 38,227.14 crore in the fourth quarter of 2016 compared to Rs. 23,519.89 crore in same quarter last year.

The NPAs have grown 18 per cent sequentially from Rs. 32,368.14 crore in the third quarter, ended December 2015. The rise has been due to the asset quality review (AQR) process ordered by the Reserve Bank of India.

As part of the AQR exercise, the RBI had asked banks to review certain loan accounts and their classification over the third and fourth quarter of FY16.

Standing on the edge?

ICICI Bank and Axis Bank accounted for 85 per cent share of the total gross NPAs of private banks as at the end of March 2016. ICICI Bank on its own accounted for 68.6 per cent of the total NPAs.

The largest private sector bank’s gross NPAs in terms of percentage to gross advances has jumped 202 basis points year-on-year and 108 basis points sequentially, to 5.8 per cent.

A mixed bag

Gross NPAs as a percentage of advances for other banks vary. HDFC Bank has remained stable over the last four quarters; others have seen a rise of 8-30 basis points in the fourth quarter of FY16 compared with the first.

Analysts expect the worst is over for private banks on the NPA front — except for ICICI Bank and Axis Bank as the two have sizeable share of corporate loans (27.5-46 per cent) in the total portfolio compared to others. “ICICI Bank and Axis bank will continue to witness the NPA pain. While Axis Bank has guided that it will take two years for the mess to be cleared, we expect the same to take at least six quarters for ICICI Bank. These negatives are not yet factored in fully into the stocks,” said Abhineesh Vijayraj, analyst at Spark Capital.

‘Skies will clear’

Harendra Kumar, Managing Director-Head (Institutional Equities & Global Research), Elara Capital, is positive on private bank stocks as the outlook turns positive post the clean-up on account of AQR.

The combined market capitalisation of HDFC Bank, IndusInd Bank and YES Bank has gone up by 7 per cent since January compared to the 1 per cent gain in the Nifty Private Bank index. Market capitalisation of HDFC Bank is more than combined market capitalisation of ICICI Bank and Axis Bank. ICICI Bank is the exception as it has underperformed Nifty Private Bank index in the last four months with a decline of 9.5 per cent since January.

Courtesy Business Line

In ill health The latest RBI report underlines the worsening banking crisis. Reform must not be delayed any further.

The latest financial stability report (FSR) of the Reserve Bank of India highlights the worsening state of India’s banking sector. To a great extent, the story is about the poor financial state of public sector banks, which account for almost 70 per cent of the total assets in the banking space. Close on the heels of the mid-year economic review, which showed that economic growth is decelerating, the FSR paints a grim picture. “The banking stability indicator shows that risks to the banking sector increased since the publication of the previous FSR, mainly on account of deteriorating asset quality, lower soundness and sluggish profitability,” it says. Just between March and September this year, net NPAs as a percentage of total net advances have increased to 2.8 per cent from 2.5 per cent. The public sector is the biggest culprit, by a large margin. PSBs have recorded the highest level of stressed assets (14.1 per cent), much higher than in the private sector (4.6 per cent) and among foreign banks (3.4 per cent). What this means is that, on the one hand, growth is faltering and on the other, the main financiers of a possible recovery are sinking deeper in trouble.

The health of the banking sector started worsening since 2011, in the aftermath of the financial crisis. The problem lies with the way PSB boards are run. There is enough evidence — including in the P.J. Nayak committee report released last year — to prove that in comparison to private sector banks, PSB boards are neither driven by the profit motive nor developmental concerns. The problem lies in the way the bank board members are appointed and the ways in which they function. Research shows that the number of risk-related issues discussed by PSB boards is negatively correlated with the net NPAs (as a percentage of advances).

On the face of it, the NDA government has taken steps to remedy the situation. At the start of the year, Prime Minister Narendra Modi made it clear that political interference will be brought down. In August, the government launched “Indradhanush”, a seven-point action plan, to reform the regulatory framework. But, in reality, there has been no real structural reform, like diluting the government’s stake in PSBs to below 51 per cent and letting them function more freely. The FSR shows that the delay in ushering in reforms is beginning to take a toll. If some action is not taken soon, India’s growth story will be hurt further.

- See more at: http://indianexpress.com/article/opinion/editorials/rbi-india-banking-sector-fsr/#sthash.ll6W8dfx.dpuf

Courtesy Indian Express News

Padmin Varkey (Ammachi) aged 79 years expired.

Padmini Varkey, aged 79 years ,Ammachi we fondly called, expired on 12.12.2015. I remember Aruna,Aysha, Raju,Ajayan, Ashokan and Aniyan at this moment. She played a great role in motivating me in my life. The Bala sanghams,the books,the talks etc etc

With a heavy heart I pray almighty,let her soul Rest in Peace.

Suresh fondly called Babu by Ammachi.

BANKING:The Supreme Court has ruled that a bank employee can claim pension and  encashment of  leave even when removed from service .An employee's heirs are entitled to superannuation benefits.
The case pertained to the denial of the claims of late S.K.Kool who was removed from service "as a measure of punishment" by Bank of  Baroda.In response to a  special leave petition by the Bank,Justice Chandramouli Kumar Prasad ruled on December 11 that employee's heirs are entitled to superannuation benefits.
Courtesy:business line dated 13.01.2014

SPANDANANGAL

SPANDANANGAL