• Bank investors beware! Power loans may trip next

    In order to give better clarity of the stress they were carrying on their balance sheets, three large banks at the beginning of fiscal 2017 disclosed lists of close to Rs 1 lakh crore of loans from where they expected future slippages to evolve.

    Three quarters down the line, close to 39% of these “watch-list” accounts have slipped into the non-performing category , while only about 6% – Rs 6,100 crore -was either recovered or upgraded from the list.

    It appears difficult to conclude which lender has optimally managed its list of loans that would cause future pain given varied parameters.

    Among the three lenders that created inventories of stressed assets, or loans to “below investment grade companies”, the slippages from the lists have been varying. At 55%, the announced quantum of slippage from the watch list was the highest for Axis Bank, followed by SBI (44%) and ICICI Bank (27%).

    With such high level of recognition, Axis appears on track to recognise a substantial portion of the watch list as NPAs as it guided in April last year -the slippages are commensurate with the level of bad assets growth. Between March and December 2016, Axis reported the steepest rise of 355 basis points in its gross NPA ratio, as against ICICI’s 199 bps and SBI’s 73 bps growth.

    The nature of lists differs, too. Axis has only included its fund-based exposures to the list even as in the last nine months it also saw close to Rs 464 crore of devolvement from the non-fund-based (credit guarantees) exposure into the watch list. ICICI Bank includes nonfund-based exposure of the slipped accounts from the list in the total exposure. While Axis has termed its list to be a “closed“ one with no additions to be made over two years ending FY18, SBI has not ruled out changes though the quantum is unlikely to be that big.

    This makes the run-rate of slippages from outside the list an interesting tool to gauge the purpose of the watch list. Although SBI, which is confident of not overshooting its FY17 guidance of Rs 40,000 crore of fresh slippages into NPAs, close to a quarter of it so far has come from outside the watch list.

    ICICI has seen 48% of its gross slippages come from outside its “further drilldown list” and expects this runrate to continue. Axis has missed its guidance in this regard, with the outside watch list slippages from corporate book rising from 11% to 30%.

    In terms of sectoral recognition, the iron and steel space accounted for a fourth of total slippages from the watch list, and the power sector for more than a third, which is likely to bring the next bout of slippages. Shaquill Griffin Authentic Jersey

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