Pri­vate NPAs

Even new gen­er­a­tion pri­vate sec­tor banks are show­ing as­set qual­ity de­te­ri­o­ra­tion in stressed sec­tors like power, steel and in­fra­struc­ture


In April last year, Axis Bank came out with a ‘watch list’ of `22,000 crore-plus stressed cor­po­rate loans, ac­count­ing for 15 per cent ad­vances to com­pa­nies. The bank, headed by Shikha Sharma, a former ICICI banker, ad­mit­ted that 60 per cent of these loans would be­come non-per­form­ing as­sets, or NPAs, in the next two years. To the bank’s sur­prise, half turned into full-blown NPAs by the end of the first year it­self, that is, by March 2017. The bank is now star­ing at fur­ther slip­pages as a bulk (al­most 60 per cent) of the re­main­ing loans in the list have been given to the bat­tered power sec­tor. Ex­po­sure to other trou­bled sec­tors such as steel, oil & gas and ce­ment could cre­ate fur­ther prob­lems.

Things have turned so bad at the new-gen­er­a­tion pri­vate sec­tor bank that it now has one of the high­est gross NPAs among pri­vate sec­tor banks (5.04 per cent). The

bank’s gross NPAs, at `21,280 crore, are half its rev­enues for the year. It is not alone. Other pri­vate banks, such as ICICI Bank, have also seen a spurt in NPAs in the last few years. The cul­prit, in most cases, is these banks’ lend­ing to core sec­tors, which have been in deep de­pres­sion for the past few years. “Any­body (public or pri­vate sec­tor bank) who has lent to the in­fra­struc­ture sec­tor has suf­fered,” says Abizer Di­wanji, Na­tional Head (Fi­nan­cial Ser­vices), EY In­dia.

What is wor­ry­ing pri­vate banks now is the Re­serve Bank of In­dia’s, or RBI’s, move to en­sure higher provisioning for even stan­dard as­sets, or good com­pa­nies, if they are in stressed sec­tors. “This will have a di­rect im­pact on banks’ prof­itabil­ity as they will have to make higher provisioning (from 0.40 per cent to 4 per cent) for even well-pay­ing as­sets,” says a con­sul­tant. Di­wanji, how­ever, says that the RBI is try­ing to make banks more re­silient. “There is enough (stress) in the sys­tem that needs to come out,” he says.

The trend of ris­ing NPAs in pri­vate sec­tor banks is sur­pris­ing, as this was con­ven­tion­ally con­sid­ered an in­tractable prob­lem only for public sec­tor banks or PSBs — which were solely blamed for hav­ing a dis­pro­por­tion­ate share of to­tal bank­ing sec­tor NPAs. Though, for most PSBs, the gross NPA fig­ure is still more than 8-10 per cent, much higher than that for their pri­vate sec­tor coun­ter­parts.

Ex­perts say it is not right to say that pri­vate sec­tor banks have been lax in lend­ing. They add that it is the global en­vi­ron­ment that has turned topsy turvy due to ex­cess ca­pac­ity and over-lever­ag­ing. Apart from this, there has been a slow­down in the do­mes­tic econ­omy. All this is cre­at­ing stress on cor­po­rate bal­ance sheets and af­fect­ing com­pa­nies’ abil­ity to pay banks. “Jaipraksh was a stan­dard as­set till a few months ago. The deal (with Ul­traTech) will be com­pleted soon and the provisioning will be writ­ten back in prof­its,” says a pri­vate sec­tor banker whose bank had to make NPA provisioning for the com­pany be­cause of the non-com­ple­tion of the deal.

The bad as­set res­o­lu­tion mech­a­nism is also not work­ing as ex­pected. In many cases, the call has to be taken by public sec­tor bank con­sor­tium mem­bers, and de­ci­sions such as hair­cut and one-time set­tle­ment get stuck for months.

For pri­vate sec­tor banks, an­other and more im­me­di­ate worry is ex­po­sure to the tele­com sec­tor. The RBI has asked banks to make higher provisioning than the reg­u­la­tory min­i­mum for stan­dard as­sets in stressed sec­tors by June this year. Some pri­vate banks have tele­com ex­po­sure , which is a stan­dard as­set. So, even when the as­set is good, the banks will be forced to en­sure higher provisioning for it, though some pri­vate sec­tor banks are al­ready proac­tive in deal­ing with loans to such sec­tors. IDFC Bank, for ex­am­ple, has been en­sur­ing higher provisioning for tele­com much be­fore the RBI cir­cu­lar. In 2015/16, ICICI Bank built a con­tin­gency fund of `3,600 crore for slip­pages in sec­tors such as steel, min­ing, power and ce­ment. The bank had to utilise the fund in 2016/17.

While pri­vate sec­tor banks are proac­tive, they are also bet­ter cap­i­talised than the PSBs and so in a bet­ter po­si­tion to ab­sorb provisioning shocks. RBI Deputy Gov­er­nor Vi­ral Acharya re­cently summed it up well when he said that the dou­bling of stressed as­sets is a cause of worry for pri­vate sec­tor banks, but their ra­tio of stressed as­sets to gross ad­vances is far lower and cap­i­tal­i­sa­tion lev­els far higher.

The pri­vate sec­tor banks also have a more di­ver­si­fied book than the PSBs. Their re­tail ad­vances are show­ing ro­bust growth that can com­pen­sate for lower credit off­take in the cor­po­rate sec­tor. Axis Bank’s cor­po­rate book, for ex­am­ple, was stag­nant in 2016/17, while re­tail ad­vances grew 21 per cent. Un­like PSBs, which face con­straints while rais­ing cap­i­tal, pri­vate sec­tor banks have been rais­ing huge amounts of cap­i­tal.

Many say the cur­rent ex­pe­ri­ence will stand pri­vate banks in good stead as ex­po­sure to cor­po­rate loans in­creases in future. ~

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