Loans Online – Asset quality improves as bad loans remain in limbo
December quarter results reported by banks indicate an improvement in asset quality, with bad loans declining for 30 lenders, aided by a court-ordered stay on bad loan classification.
Lenders have seen their gross non-performing assets (NPAs) drop 6.3% on an absolute basis from the same period last year, when they were free to classify delinquent loans as bad, representing the true picture of loan books.
For instance, the 30 banks reported bad loans worth ₹7.38 trillion as on 31 December, compared to ₹7.88 trillion in the same period last year.
₹7.38 trillion as of 31 December 2020, from ₹7.88 trillion in the year-ago period, aided by a Supreme Court-ordered stay on bad loan classification ” title=”Thirty lenders saw their bad loans declining to ₹7.38 trillion as of 31 December 2020, from ₹7.88 trillion in the year-ago period, aided by a Supreme Court-ordered stay on bad loan classification “>
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At a more granular level, a clutch of 18 private sector lenders have gross NPAs of ₹1.61 trillion, while 12 state-owned lenders contributed another ₹5.7 trillion to the bad loan pile.
India’s largest bank, State Bank of India Ltd has the highest quantum of bad loans in absolute terms. However, as a percentage of total advances of over ₹24 trillion, its toxic assets are at 4.77%, lower than its public sector peers.
That said, banks are yet to recognize loans that have crossed the 90-day overdue after 31 August, under a Supreme Court directive. Banks are reporting these notional bad loan numbers in their notes to accounts accompanying financial results as proforma bad loan ratios.
Most banks reported 100-200 basis points (bps) higher proforma bad loan ratios than their reported gross NPA numbers. For some, it’s even higher. Yes Bank Ltd said that while its gross NPA ratio stood at 15.36%, it would have touched 20% on a proforma basis. Others, such as Axis Bank Ltd, have gone a step further and provided a breakup of its proforma bad loans.
Axis Bank said that under the extant Reserve Bank of India guidelines, or in the absence of the standstill on asset quality, its gross slippages would have been ₹6,736 crore, a majority of which is retail loans. Puneet Sharma, chief financial officer, Axis Bank, said on 27 January that the reported slippages for the quarter are not reflective of a normalized quarter.
“The reported gross and net slippages picture during the quarter has two compensating effects: moratorium coming to an end, resulting in asset aging-based slippage, offset by Supreme Court standstill,” said Sharma.
In fact, banks seem to have differing views on retail asset quality, with some expressing concern, while the rest project business as usual.
Public sector lender, Bank of Baroda Ltd highlighted that loans to small businesses and retail customers could witness stress going ahead. Sanjiv Chadha, chief executive, BoB, however, said the likely stress will be offset by lower credit cost on the corporate loan book.
However, when asked the same question, A.K. Das, chief executive of Bank of India, told reporters that he does not see much of a challenge in the individual loan category. While Bank of Baroda’s total retail loans stood at ₹1.16 trillion as on 31 December, it was at ₹65,143 crore for Bank of India.
Loans Online – Asset quality improves as bad loans remain in limbo
