Mumbai: Though the Q4FY19 numbers had indicated that most of stressed assets had been recognised and banks might report better earnings, the Q1FY20 disappointed with subdued earnings, high slipppages, low recoveries and moderating credit growth.
The banking sector results for the first quarter ended June 30, 2019 broadly indicate that the addition of stressed assets could continue over the next few more quarters, making it difficult for bank managements to adhere to their credit cost guidance.
New pockets of stress have started emerging in the corporate and retail segments, showed the first quarter earnings of both public sector and private sector banks. In view of the challenging macro economy and a larger stressed pool of loans in sight, banks margins could remain under pressure, warned analysts.
In the corporate segment, new companies are getting added to banks’ stressed portfolio, such as Cox and Kings, DHFL, Talwalkar Group firms and Cafe Coffee Day. In the retail segment, too, early signs of stress is emerging in personal loans, auto loans and farm loans. With economy slowing down and rising job losses, analysts are cautious on retail focused banks.
Several top lenders such as State Bank of India, Axis Bank, Bank of Baroda (because of merger with Dena and Vijaya Bank) have reported a rise in slippages while ICICI Bank provided a breather with improved overall performance.
"We had thought that Q4FY19 was the peak of slippages but Q1FY20 saw a rise in slippages. There is no clear indication that banks will report lower slippages going forward as new companies are coming under stress. Secondly, current account, savings account (CASA) ratio of most banks are falling as savers are moving their money from CASA to term deposits to lock their money for long term as deposit rates are falling, this can be a challenge for banks," said Siddharth Purohit of SMC Institutional Equities.
Says Asutosh K Mishra, Head of Research, Insti-tutional Equity at Ashika Group said, "A few banks such as HDFC Bank and SBI had large write-offs. While the recoveries were not good in Q1FY20 for most banks, we expect that the some Insolvency and Bankruptcy Code cases may get resolved soon and boost recoveries in the second quarter earnings."
After sustained improvement over FY19, the country's largest lender, State Bank of India, disappointed on asset quality in Q1FY20. Slower than expected resolution in NCLT cases, a buildup in anticipated stress and deteriorating macros are likely to postpone the return on average asset improvement as credit costs rise. SBI, which is a barometer of the macro economy, reported a net profit of Rs 2,312 crore for the June quarter. Its gross slippages at Rs 16,212 crore increased sharply by 62.38 per cent year-on-year and 116.01 per cent sequentially. Its slippage ratio increased significantly to 2.83 per cent from 1.39 per cent in Q4FY19.
Similarly, Axis Bank's Gross slippages were at Rs 4,800 crore (3.9 per cent) higher than the last four quarter average of 3 per cent, led by higher corporate, retail and SME slippages.
In its June quarter earnings concall with analysts, private lender HDFC Bank pointed to stress in the agriculture sector, and specifically mentioned a slowdown in auto loans.
HDFC Bank's advances to the vehicle loan segment, where sales volumes have seen some moderation, grew at 8.3 per cent in comparison with a 22 per cent expansion seen in the first quarter of FY19.. The retail segment constitutes 54 per cent of HDFC Bank's loan book....