INSUBCONTINENT EXCLUSIVE:
MUMBAI: Large corporate-focused lenders that bore the brunt of rising NPAs for the better part of last decade are showing signs of
sustainability, analysts say
Higher recoveries from bad loans and a slowdown in new NPA creation are likely to make profits more durable, they say.
ICICI Bank, Axis Bank
and State Bank of India (SBI) have cleaned up their books and are poised to see better days ahead, helped by their wide reach, superior
liquidity and better quality loan book
However, challenges with regards to lending to non-banking finance companies and exposures to debt-laden companies such as ILFS could play
Shah, an analyst at HDFC Securities.
Shah prefers private sector lenders ICICI Bank and Axis Bank over state-owned SBI
Axis Bank too is better placed now with the entry of a new CEO who has proven his execution skills and is adept at using technology for the
More importantly, slippages declined to Rs 2,777 crore -- down 69% year-on-year indicating an improvement in credit quality for the private
sector lender.
Similarly, ICICI Bank swung back to a profit after a historic loss in the quarter ended June 2018, led by strong loans growth
even as uncertainty over the future CEO ended during the quarter
Gross additions to NPAs at Rs 3,117 crore was the slowest addition in NPAs in 12 quarters and provision coverage ratio improved to 69.4%
from 66.1% at the end of June
Purvesh Shelatkar, senior vicepresident at Centrum Broking, said better macro-economic prospects and favourable court order for power
companies have also improved the prospects for large corporate lenders
The other large chunk of nonperforming assets from power are also on the mend after the Supreme Court order allowed power producers to
renegotiate their agreements.
All these arguers well for these large lenders
Late last month, the Supreme Court allowed three power projects run by Adani Power, Tata Power and Essar Power to renegotiate their power
purchase agreements (PPAs) to reflect the higher cost of imported coal
Power discoms in Maharashtra, Rajasthan, Punjab and Haryana have signed PPAs with Adani Power, Tata Power and Essar Steel
However, the pressure on stateowned banks to lend to NBFCs could pose problems as these lenders are known to accumulate bad assets which
private sector lenders avoid
On Monday, SBI said it had swung to a profit after three consecutive quarters of losses led by growth in interest income and lower
provisions.
Analysts though point out that the bank has not made the mandatory 100% provision for a large loan to Essar Steel and taken a
whopping one-time gain of Rs 1,087 crore from the sale of investments in its general insurance business and transfer of the merchant banking
However, the recovery of credit cycle and lower slippages from the corporate pool have enthused some analysts
the near term (66% of power assets are rated A- or above)
