Asset Quality Deteriorates Further for Banks - Chart Of The Day 26 July 2017 - Equitymaster

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Asset Quality Deteriorates Further for Banks
Jul 26, 2017

When it rains, it pours. This can't be truer for any sector other than banking at the moment. If first quarter FY18 results of banks are anything to go by, there's a long painful road ahead. Axis Bank reported a gross non-performing asset (GNPA) ratio of 5.03%, a rise of 249 basis points year on year. Other regional players like Karnataka bank and Lakshmi Vilas Bank also reported deteriorating asset quality numbers.

Apart from these banks, PSBs are also expected to report similar or even worse numbers. The Reserve Bank of India (RBI) recently identified 12 largest bad loans for resolution under the bankruptcy code. State Bank of India (SBI) is the lead banker to 6 of these 12 accounts.

While the final solution would be liquidation of these 12 major defaulters, how much value will their lenders i.e. PSBs get from selling them remains to be seen. It is likely that these defaulters would have already sold their most productive assets to stay afloat.

The RBI also expects the average GNPA ratio to increase to 10.2% by March 2018. It indicated that if macroeconomic conditions worsen, this number could go up.

Bad loans at public sector banks have grown by more than Rs 1 trillion since April 2016 to Rs 6 trillion as of 31 December 2016. Banks such as IDBI Bank and UCO Bank are already facing regulatory curbs due to worsening asset quality. On the other hand, private sector banks such as Yes Bank and ICICI Bank was recently in the news for under-reporting of bad loans.

Although RBI is showing urgency in tackling the NPA issue, a lot more needs to be done by lenders too to stop the rot.

Data Source: BSE India

This Chart Of The Day was published in The 5 Minute WrapUp - Why Did This Zen Investor Go Rogue?

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