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MUMBAI: Almost a year after Reserve Bank of India (RBI) asked banks to move to a stricter non-performing asset (NPA) recognition regime, there are clear signs of a moderation in fresh NPA additions, with many large banks reporting a fall in this number every quarter so far this fiscal.
New additions to NPAs for State Bank of India (SBI), ICICI Bank, Axis Bank and Bank of Baroda (BoB) were at their lowest in many quarters in the third quarter ended December.
According to analysts, the trend is clear and banks can now seriously think of putting their NPA baggage in the past and work on improving their profitability in the months to come.
Data from banking results shows that the addition on NPAs for these lenders is the slowest in at least a year.
For ICICI Bank, the addition in NPAs in the third quarter was the slowest in more than three years while for SBI it was the slowest in more than four years.
The Rs 4,523 crore NPAs SBI added during the quarter was the slowest since at least fiscal 2015, data available on the bank's website shows.
New additions of bad assets had hit their peak for most banks in the quarter ended March 2018 after RBI's so-called February 12 circular forced banks to accelerate recognition of NPA.
BoB added Rs 3,733 crore of NPAs in the third quarter ended December 2018, which was its lowest since the quarter ended September 2017 when it added Rs 3,451 crore NPAs.
The story is similar among private sector banks.
In the third quarter, ICICI Bank added Rs 2,091 crore of NPAs, its lowest since the first quarter of fiscal 2016 when it added Rs 1,672 crore in NPAs.
Similarly, Axis Bank added Rs 3,746 crore in the quarter ended December its lowest since Rs 3,519 crore added in the quarter ended June 2017.
“The trend is clearly showing that problem assets have been recognised, be it from the RBI mandated asset quality review (AQR) or the large accounts the central bank referred to the National Company Law Tribunal (NCLT) under the new bankruptcy code,” said Lalitabh Shrivastawa, banking analyst at local brokerage Sharekhan, a BNP Paribas company.
“While some banks may still have to make legacy provisions, the additions to NPAs will be low to moderate.”
Bankers said they are now more confident that the NPA recognition process started a year ago by RBI is coming to a close.
“The impression I get is that (we have adequately) represented our stress book,” Axis Bank CEO Amitabh Chaudhry, who took over the role in January, had said in an interview last week.
“98% of our slippages have come from the stress book for the last couple of quarters.
Our risk management and credit monitoring systems are working and whatever we are showing is what it is,” he had said.
Analysts said the trend is suggesting a moderation is here to stay, which gives banks more certainty on provisions, improving profitability in the days ahead.
“There has been a secular downtrend in slippages, particularly among large lenders, suggesting that stress is moderating,” said ASV Krishnan, sector lead, banking and financing services at SBICAP Securities.
“Loans may still go bad but they will be largely from assets and sectors that are already tagged as stressed.
It is now possible for banks to take a final call on provisions against such loans and move forward, which allows them to focus on executing their incremental strategy.”
