Q3FY16: Poor show

While margins remained largely stable, Q4 and F17e could see some impact from the large Non Performing Loan recognition

were lower at 2.07% v/s 2.22% in Q2FY16.

Management expects slippages of ~ R65 bn in Q4FY16 at similar levels as in Q3FY16. Almost 2/3rd of the slippages are expected to be due to the change in asset reclassification as per RBI in the power sector.

Management believes that the change in asset reclassification is not likely to impact the recoverability of the asset.

Management did not give any guidance on the asset quality in FY17e. The bank will make additional provisions of R3.5bn for vulnerable restructured assets at 10% as per RBI directive.

The bank classified R4.5bn of assets under 5/25 scheme and R16.7 bn of assets under the SDR route. The current pipeline under 5/25 scheme is at R7bn & R12bn under the SDR route.

A substantial part of the incremental delinquencies were classified under the doubtful category; the corollary of it is that the bank has taken a major provision hit on the incremental slippages.

We had estimated R75 bn of incremental stress through to FY18—this falls within that estimate but the lumpiness is a negative surprise. We had expected the provision hit over the next ten quarters. Given that the substantial part of stress recognition is front ended it is only the timing difference. We will not change our FY17/18e estimates until we assess the impact of early recognition on LGDs. Loan growth

Retail loan growth was robust at 24% y/y driven by strong growth in home loans at 24% y/y. Management expects retail loan growth of 25% y/y driven by increasing distribution network & focusing on existing customers.

Domestic corporate loan growth stood at 15% y/y. The incremental loans were mainly to highly rated corporates including PSUs. SME loan growth was strong at 21% y/y. Fee growth

Fee growth remained muted at 7% y/y. Though the retail fees continue to remain strong the overall fee income was impacted by subdued corporate fees. Retail fees contributed ~2/3rd of the total fees.

— J P Morgan