Indian banks are unlikely to see a surge in non-performing assets (NPAs) despite uncertainty in the macro-economic environment, says Chanda Kochhar, managing director and chief executive officer of ICICI Bank Ltd.
“The situation is idiosyncratic. It’s about specific micro-related issues in a context, where the scale of the economy, the corporate sector and the banking sector are resilient enough to handle these issues. In my view, you will not see some huge surprise in non-performing assets or unmanageable issues around quality of assets,” Kochhar said in a recent interview to Morgan Stanley.
She also refused to compare the present situation with the 1990s, when Indian banks' asset quality deteriorated following a sharp increase in bad loans. “This is an exaggerated view around the challenges and the worries...The economy is structurally different, the corporate sector has evolved and the banking sector is structurally different.”
According to her, India Inc is well-placed to service its loan dues with banks even if projects are delayed and there's some strain on their cash flows. This is because companies now have more access to capital, relative to the projects they have undertaken.
Also, the delinquency rate in retail assets has been low and these assets are performing well so far. In the corporate sector, bad loan-related issues are project or company-specific, Kochhar said.
“I think certain companies are over-leveraged whereas in other cases, projects are delayed,” she said.
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In 2011-12, ICICI Bank's gross NPAs declined to Rs 9,563 crore from Rs 10,114 crore a year earlier. The bank's net restructured loans stood at Rs 4,256 crore as of March 2012.
Kochhar said she did not expect restructured assets to become non-performing in the coming years.
In the past, the movement from restructured loans to NPAs has been about 15 per cent. For large lenders like ICICI Bank, it has been around five per cent, she said.
“Restructured loans are not future non-performing assets... In a growth economy, where projects are set up in a competitive environment, issues are immediate-term. Either cash flows are stretched out or there is delay in cash flows. As the financing issues get resolved, the underlying demand for the product brings back the cash flow for the project. In a growth economy, projects grow out of their issues,” she said.
While Kochhar says a rise in lending rates in the past 12-18 months has increased the project costs for domestic companies, she feels “from a 10-year perspective in a growth economy, the debt is serviceable.”
On the new regulatory norms for banks across the world, Kochhar said Indian banks would be able to adjust with the new environment better than their global peers as lenders here had always been working in a conservative regulatory environment.
“We are used to a conservative set-up. However, globally, banks are facing a kind of shock because they were operating in a light-touch, liberal regulatory environment and are now in an over-intrusive and over-conservative environment. That adjustment is a bigger shock, whereas in India, banks are fine,” she said.