Private sector banks report a 62.5% jump in bad loans in Q4

Cumulative non-performing assets (NPAs) of private sector banks have surged 62.5 per cent to Rs38,227.14 crore in the fourth quarter (January-March 2015-16) compared to Rs23,519.89 crore in same quarter of the previous year as banks were forced to make additional provisions under tighter Reserve Bank norms for asset classification.

This was amply reflected in the fourth quarter results of the country's largest private bank ICICI Bank, which reported a collective contingency reserve of Rs3,600 crore to provide for a commodity market slowdown.

Consequently, ICICI Bank's net profit slumped 76 per cent to Rs702 crore during the quarter ended 31 March 2016. This is also the biggest drop in quarterly profit for ICICI in the past 15 years.

For the quarter ended 31 December 2015, cumulative non-performing assets of leading private sector banks, including ICICI Bank, Axis Bank, HDFC Bank, IndusInd Bank and YES Bank, have surged 62.5 per cent to Rs38,227.14 crore from Rs23,519.89 crore in same quarter of the previous year.

NPAs of private sector banks also saw 18 per cent sequential growth from Rs32,368.14 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.

ICICI Bank and Axis Bank accounted for 85 per cent share of the total gross NPAs of private banks as of end-March 2016, with ICICI Bank alone accounting for 68.6 per cent of the total NPAs.

Gross NPAs of the bank as percentage of gross advances jumped to 5.8 per cent – a 202 basis point increase year-on-year and 108 basis point growth sequentially. 

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

ICICI Bank and Axis bank, which account for 27.5 and 46 per cent of all corporate credit in the country, are expected to carry the burden of NPAs until at least the next year. 

As in the case of state-run banks, private sector lenders too have been affected by the global economic downturn that engulfed the global economy since the onset of the financial crisis in 2008.

Also, other external factors like fall in commodity prices, dumping by China etc have led to reduced competitiveness and consequently idle capacities and cash flow problems.

The situation got aggravated due to the policy logjam that followed in the country. Several large scale projects have remained stalled due to lack of environmental clearances, cancellation of coal block allocation, falling through of the fuel supply arrangements, local protests etc

As RBI deputy governor S S Mundra pointed out in his keynote address at the Edelweiss Credit Conclave in Mumbai on Thursday, ''For the enterprises under temporary duress, we must stretch every sinew to ensure that a productive enterprise does not become terminally ill. There are suppliers- sometimes in the form of small ancillary units or MSMEs and then, there are workers and their families. Each enterprise supports many lives. There is an entire ecosystem around a factory or company. Closure of any running unit would impact the lives of scores of people and hence, I feel it's a collective societal responsibility that productive enterprises don't run aground.''