Banks See Another Jump In Bad Loan Additions In Q1 As New Stress Emerges

The bad loan cycle for Indian banks, which began in 2015, is getting stretched out as new segments of stress have started to emerge against the backdrop of weakening economic growth and volatile financial markets.The stress, which was earlier restricted to sectors like infrastructure, telecom and power, is now being felt across a much wider array of sectors ranging from housing finance, travel and tourism and media. Defaults are also emerging from specific promoter groups, perceived to be over-leveraged.According to data compiled by BloombergQuint, slippages, or fresh bad loans, in the April-June 2019-20 quarter jumped to the highest since atleast the first quarter of last financial year. The country’s ten largest banks reported slippages worth Rs 53,724 crore in the first quarter of the current financial year compared to Rs 51,459 crore.While slippages for these banks rose marginally compared to a year ago, compared to the previous quarter, slippages were up 25 percent.The data compiled does not include IDBI Bank Ltd., which is yet to report its results for the quarter ended June 30..The Corporate PressureMost lenders reported slippages from their loans to companies rated BB and below.This suggests that firms that were already weak have weakened further in a slowing economy. Soured sentiment in the corporate bond markets has also meant that lower rated firms are finding it difficult to refinance loans.For State Bank of India, Rs 5,354 crore in slippages—or 33 percent of all slippages—came from the corporate sector. Most of this was from the book rated BB and below, the bank’s management said. At Axis Bank Ltd., 79 percent of the net slippages in the corporate book came from this segment. For Yes Bank Ltd., about half of the net slippage came from this pool of loans.The sectors in which these companies operate are varied and stress appears to be emerging from high leverage at the company and promoter levels.Jairam Sridharan, chief financial officer at Axis Bank, told analysts that they are watching eight large corporate groups and conglomerates. “These groups are engaged in infrastructure finance, infrastructure, power, telecom, housing finance, travel and tourism, commodities, molded plastics and media related sectors,” Sridharan said.Ravneet Gill, chief executive officer of Yes Bank, also pinned the increased defaults to specific groups rather than sectors. “If you look at our book, it is not that there is heavy exposure to a particular sector or industry. There are a handful of concentrated exposures which are facing liquidity issues and not solvency issues,” he told BloombergQuint in an interview.Explaining the prevailing environment, Vishwavir Ahuja, MD and CEO of RBL Bank Ltd., told BloombergQuint that a combination of factors has led to increased slippages.“We are going through times when the corporate credit environment has been quite vitiated. At promoter level, there is build up of leverage. There has been tight liquidity conditions and the equity markets have been volatile. So its combination of all of these working out,” Ahuja said.The SBI management, while detailing their earnings said that it is continuing to watch non-bank lending and automobile sectors to ward off any additional stress that may develop in the coming quarters..SME, Agriculture StressApart from corporate stress, banks have also seen slippages coming from small and medium enterprises as well as agriculture loans.Smaller firms, which were under a special RBI dispensation till March 31, added to the pool of bad loans for PSU banks as the benefits given to small firms to tide over any disruption caused by GST implementation expired.For SBI, Rs 3,964 crore out of over Rs 16,000 crore in slippages during the June quarter came from SME accounts. Public sector lender Union Bank of India also saw Rs 1,500 crore slippages from SME borrowers, the largest contributor to the quarterly additions to bad loans worth Rs 3,090 crore.In February 2018, RBI had said that SMEs, enrolled with the Goods and Services Tax Network and with outstanding loans up to Rs 25 crore, would be classified as NPA only 180 days after default, as compared with the 90-day bad loan norm. The benefit was rolled back in phases starting January 2019 and now stands fully closed, said PK Gupta, managing director at SBI.Agriculture loans, too, have shown higher delinquencies in the June quarter. While this is a seasonal problem, banks have seen slippages owing to the loan waiver which happened last year. SBI alone saw over Rs 4,000 crore worth slippages from its agriculture loan portfolio. Out of this, about Rs 2,000 crore in slippages came from Maharashtra alone where the deadline to implement the waiver has been extended many times, a senior official at SBI said, speaking on conditions of anonymity.Murky OutlookThe pick-up in slippages along with slow recoveries from legacy bad loan accounts has once left analysts worrying about the outlook for the banking sector.According to Siddharth Purohit, banking analyst at SMC Global Securities, the reversal of the slippages trend has been worrying.“All through FY19, there was a lowering of slippages across the banking sector. The expectation was that it will continue this financial year as well. However the banking sector is now seeing stress emanating from companies which were previously stable, like in the NBFC sector. This is contributing to higher slippages,” Purohit said.Asutoh Mishra, head of research (institutional equity) at Ashika Stock Broking agreed.“Things have taken a turn for the worse since the IL&FS crisis came up in September last year. We are yet to see banks downgrade some large NBFCs into NPA and there is no certainty on what kind of resolution plans can be implemented for these companies. Lenders are also seeing elevated slippages from their SME, agriculture and retail portfolios, which is again a sign of worry,” Mishra said.The lenders, however, maintain that their net rate of defaults is expected to come down later in the financial year, as recoveries are likely to improve due to resolution from cases under the Insolvency and Bankruptcy Code.Three large cases, Essar Steel Ltd., Bhushan Power & Steel Ltd. and Alok Industries Ltd. are close to resolution, and are likely to help SBI recover Rs 16,000 crore this year, according to CEO Kumar. “I pray everyday,” Kumar said when asked how soon the banks expect recoveries to pick-up..Tycoon’s Fund Warns Indian Realty Bad-Loan Crisis to Get Messier

Banks See Another Jump In Bad Loan Additions In Q1 As New Stress Emerges

While slippages for banks rose marginally compared to a year ago, compared to the previous quarter, slippages were up 25 percent.

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