Corporate loan pick-up could fizzle out: Analysts

According to an analyst, private sector banks have enough capital to make good use of the space left behind by PSBs

Signs of credit revival in the books of private lenders might not be an indication of investment revival, analysts have cautioned. The corporate loan books of Axis Bank and IndusInd Bank had shown good signs. These could be essentially working capital loan extensions due to a pullback by public sector banks (PSBs). Such a rise in the loan books could be tricky for private banks, as a system-wide credit revival would put PSBs back in the game. The business opportunity could then again swing away from private lenders, say analysts. 

Axis Bank’s corporate loan book grew 10 per cent year-on-year in the quarter ended September, after being near-zero for a long time. IndusInd registered corporate loan book growth of 26 per cent. Axis Bank’s working capital loan book grew 36 per cent, while IndusInd’s corporate books were always almost comprised working capital loans, said analysts.

“We love the corporate sector and want to get back in that space,” Jairam Sridharan, chief financial officer (CFO) of Axis Bank, had said during a post-result call with journalists. He said the bank would be “happy to grow this business but business opportunities need to come up and the economic environment needs to see a bounce back.”

Analysts say the new goods and services tax (GST) might have been a reason for the pick-up in working capital loans. “Working capital requirement went up for companies, as they had to file returns under the GST. It is a temporary working capital mismatch,” said Suresh Ganapathy, associate director at Macquarie Capital Securities India.

According to an analyst with a domestic brokerage firm, private sector banks have enough capital to make good use of the space left behind by PSBs. “Public sector banks are not willing to give loans even to good-rated customers, as they are struggling with their capital. After the clean-up exercise, banks now have a fair idea which corporate to tap and there is competition to make these companies their clients,” said the analyst, requesting anonymity. 

Divergence in NPA numbers

However, analysts and markets are disappointed over the wide divergence found by the Reserve Bank of India (RBI) auditors in Axis Bank’s books. They fear other large banks might also throw up such surprises. The Axis Bank stocks closed 9.52 per cent down at Rs 464.35 a piece on the BSE on Wednesday. 

On Tuesday, the bank had said the central bank had identified nine accounts, of which only 6 per cent have been identified as non-performing assets (NPAs) by other banks, to be re-classified as bad debt in Axis Bank books. This would mean that so far at least 94 per cent of the assets, whose value cannot be ascertained at this point, would be classified as NPA by the RBI auditors in other banks as well, said analysts. 

 

The bank said the RBI auditors identified nine accounts at the end of 2016-17 to be reclassified, and all those accounts are now NPAs and provided for in the second quarter. The nine accounts amounted to Rs 4,867 crore. Last year, the divergence was Rs 9,478 crore.

Still, asset classification differs from bank to bank. Therefore, Axis Bank might not have recognised its rotten apples earlier, which other banks might have already categorised as NPAs. 

“Axis Bank generally was lacking in recognising stress in the power and infrastructure space and this is a bit of a catch-up for them. That shouldn’t mean other banks would also report such high slippage in these sectors,” said another analyst with a rating agency. 

According to the analyst, the challenging part now was that power sector loans would show as NPAs in bank books. Provisioning for these is scant as these companies were earlier restructured and kept as good loans. “For example, some thermal power plants will show up as NPAs in bank books. That’s the big takeaway,” added the analyst, requesting anonymity.