After witnessing a sharp rise in bad loans over the 12 months, banks may see a turning point in the third quarter, as the pace of slippages moderated on gradual improvement in liquidity for companies and business climate.
A performance analysis of 31 banks, which have announced Q3 results, shows sequentially gross non-performing assets (NPAs) grew only 3.38 per cent in Q3 as against 15.01 per cent in Q2 and 10.2 per cent in Q1 (see graph).
Bankers said the major issue across industries has been tight liquidity for companies. Things have improved marginally on the liquidity front, bringing some relief to stretched balance sheets. Dues of companies in the power and construction sectors were stuck, threatening to render many accounts NPAs.
A clear picture will emerge over the next two weeks as three large public sector banks – State Bank of India (SBI), Bank of Baroda and Canara Bank – declare Q3 results.
A senior SBI official said Q3 (October-December 2012) has been relatively better than the first and second quarters on the rise in slippages front. While the portfolio of outstanding NPAs will continue to grow, the pace of additions is expected to fall.
Vibha Batra, senior vice-president and co-head - financial sector ratings at ICRA said the phase of high level slippages is over. From here, the pace of deterioration should reduce. Echoing her sentiments IDBI Bank Executive Director R K Bansal said Q3 was not as bad as the previous quarter. Though slippages continue, upgradations were also substantial.
On outlook, bankers sound a note of caution for the fourth quarter (ending March 2013) and beyond. The scenario is changing for the better but things will look up gradually.
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A senior executive in a large public sector bank said the kitty of outstanding NPAs will continue to grow, albeit at a slow pace, as the economic and business environment are showing signs of coming out of an extended bad patch.
There are still some high-risk sectors such as power, iron and steel, and to an extent, textiles. Iron and steel units have been hit by problems in sourcing raw materials and a dip in demand, amid the slowdown.
The likely trajectory that the NPA percentage takes would also hinge on the economic environment as well as the resolution of fuel availability issues in power generation and structural reforms in power distribution, ratings agency ICRA said in a note.