Mumbai: India’s non-state banks are likely entering a period of margin compression, deterioration in asset quality, rising provisions and high credit costs, the June-quarter results for most private sector lenders have signalled. Banks are also expected to see intense competition in deposit accretion that could push up fund costs.
Apart from the seasonal impact, heightened due to general elections and heat waves across the country that affected business activities, most private lenders saw a higher formation of fresh bad loans emanating from retail, especially personal loans and credit cards. Agriculture loans also contributed to some stress, according to post-results commentary by several banks.
The net profit of nine large private banks rose 26% to ₹44,308 crore in the first quarter that ended June 30 from a year earlier, according to an ET analysis. However, the coming quarter will be challenging, said bank analysts.
“It is obvious that recoveries cannot continue at the same pace as we have seen the previous few years, so that has to come down and therefore your reported credit costs will inch up as it is net of recoveries,” said Suresh Ganapathy, head of financial services research at Macquarie Capital. “The issue is there has also been some pickup in stress in the unsecured segment, there is some element of overleveraging in the system, so that will spill over in some form or the other. It is not a decisive change in the NPL (non-performing loan) cycle. But it is a decisive change towards a normalisation path.”India’s largest non-state lender, HDFC Bank, reported a 35% rise in net profit to ₹16,175 crore in the June quarter. Deposit growth was lower than the rate required for an accelerated normalisation of its liability profile.
Rival ICICI Bank reported a 14.6% rise in fiscal first-quarter net profit at 11,059 crore, buoyed by strong treasury income. Its slippages worth 5,732 crore emerged from the retail, rural and business banking segments. Another 184 crore came from corporates and small and medium enterprises.
Axis Bank reported a tepid 4% rise in its net profit to 6,035 crore, as provisions doubled. Fresh slippages rose 20% on year to 4,793 crore out of which 4,200 crore came from the retail segment. The lender’s provisions doubled on year and stood at 2,039 crore. The management indicated that stress emanating from the unsecured segment was within its risk guardrail. Reported deposit growth was down 1.6% sequentially. Deposit growth was 3% quarter-on-quarter versus 4.5% for HDFC Bank.
Kotak Mahindra Bank’s 81% rise in June quarter net profit was primarily driven by a one-time event — the sale of a stake in its general insurance subsidiary — and didn’t reflect the bank’s core operational strength. The bank saw increased compression in its net interest margins due to the rise in high-cost term deposits. Its special mention accounts (SMA2) or loans overdue more than 60 days rose to 232 crore from 199 crore three months earlier.
IndusInd Bank reported a flat 2% on-year rise in net profit at 2,171 crore as business slowed in a seasonally weak review period that the lender’s chief executive described as “challenging”. Fresh slippages were 1,536 crore; almost 1,488 crore came from the consumer book. The lending book grew by just a per cent over the March quarter.
“It was a challenging quarter. Collections and cautious disbursements were the key focus during the quarter given the external disturbances,” said Sumant Kathpalia, CEO ofIndusInd Bank. “The disbursements were lower due to the elections and the heatwave. We see that the rural areas are still coming out from the disturbances faced during Covid. We are seeing improvements and we should see a better quarter two.”
RBL Bank saw fresh slippages rise to nearly 720 crore. The deterioration in asset quality was due to stress in the microfinance and cards segment. For RBL, net slippages from the credit card portfolio were 400 crore.
