Private banks see elevated slippages from unsecured loans in Q2FY25

HDFC Bank remains unaffected by the industry-wide stress

Most private banks reported significant slippages to non-performing assets (NPA) from unsecured loans like credit cards in the July-September period (Q2FY25).

Axis Bank, Kotak Mahindra Bank, and RBL Bank, which have announced their Q2 earnings, reported increased slippages in these areas and expressed caution regarding their portfolios.

In contrast, HDFC Bank — country's largest private sector lender — has remained unaffected by the industry-wide stress in the unsecured segment.

“We are seeing some worsening of asset quality in some of the unsecured and some other asset classes,” said Amitabh Chaudhry, MD&CEO, Axis Bank, in an earnings call with the media.

 

Axis Bank reported gross slippages of Rs 4,443 crore, with a bulk of it coming from the unsecured side of the business. Additionally, the Rs 3,100 crore write-offs by the bank were also mainly in the unsecured portfolio.

Arjun Chowdhry, group executive, Axis Bank, said the bank has taken early actions to address the issue. “Some of those actions include taking actions around scores, tightening our scores, curtailment of spending limits… all of which are beginning to show good results and the early signs that we have seen this quarter show signs of improvement,” he said, adding that the bank remains cautious and focused on monitoring the performance of that portfolio in particular.

On the microfinance segment, Axis Bank management indicated that “delinquency numbers have shown an increase over the past period”, but nothing has gone beyond their risk guardrails.

Another major lender Kotak Mahindra Bank experienced rising credit costs due to increased slippages, largely driven by its unsecured portfolio, particularly in credit cards and microfinance. This trend is consistent with what has been observed across most peers. Management anticipates that credit costs will remain elevated for the next two-to-three quarters before beginning to decline.

Kotak Mahindra Bank shares were down 4.3 per cent on Monday, following the lender’s Q2 earnings on Saturday.

RBL Bank reported a 24 per cent decline in net profit as overall provisions shot up due to elevated stress in the credit card and microfinance portfolios.

RBL Bank MD&CEO R Subramaniakumar told reporters on Saturday that the stress in the microfinance book is due to industry-wide issues, but the same on the credit-card front, where the regulator has been flagging risks for the industry, is on account of internal aspects.

The bank has hired newer hands after it decided to move the collection processes in-house from July, which has resulted in the elevated slippages, while in the case of microfinance, it is about over-leveraging among borrowers that has led to higher setbacks.

RBL Bank’s share price tanked 14.21 per cent on Monday, touching a 52-week low.

Meanwhile, HDFC Bank reported flat credit costs and slippage ratio.

“Even a quality bank like Kotak didn’t go unscathed in this unsecured loan saga… And HDFC Bank needs to be given full credit here… They saw something well before all banks could spot — they slowed down their unsecured book a good 6-9 months before RBI regulations came through,” said Suresh Ganapathy, head of financial services research, Macquarie Capital.

According to Sashidhar Jagdisan, MD&CEO, HDFC Bank, the bank, for a couple of years, has been calibrating its growth depending on the early indications they were getting. “The call taken by our credit architecture has come out well yet again. We are in an extremely comfortable position. Obviously, there are risks in the system. But we are well positioned looking at our portfolio,” he said in an analyst call following the bank’s earnings.

HDFC Bank’s share price closed around 3 per cent up on Monday.