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    Farm loan waivers add Rs 60,762 crore to state-run banks’ bad loans in Q3

    Synopsis

    New stress emerges in agriculture, MSME, commercial vehicle, telecom and realty

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    State-run banks are not out of the woods yet, as new stress has emerged in the agriculture, MSME, commercial vehicle, telecom and real estate sectors in the fiscal third quarter.

    Farm loan waivers in Uttar Pradesh, Maharashtra, Tamil Nadu and Punjab added ₹60,762 crore in gross bad loans to the books of SBI, Punjab National Bank, Bank of Baroda and Bank of India, increasing their non-performing agriculture credit by 30 per cent from a year earlier, according to the numbers they reported for the third quarter. Gross bad loans in the MSME space rose 6 per cent to ₹66,280 crore.

    40 per cent Higher Slippages

    These data damp expectations that state-run banks were on a path to recovery, after a disappointing fiscal 2019 when huge provisioning against bad loans had pushed them into losses. In the first half of this fiscal year, they had cut bad loans and reported improved financial performance.

    “We believe new forms of stress are emerging. On the retail side we have stress from agriculture and the commercial vehicle space and on the corporate side there is stress in real estate, telecom, SME and the mid-corporate space,” said Suresh Ganapathy, the head of financial services research at Macquarie. “The only comfort factor is that banks have provided for well and now carry an approximately 60 per cent coverage on non-performing loans.”

    Macquarie has increased its credit cost assumptions on an average by 50 basis points, or half a percentage point, for the next two fiscal years to 180 basis points to reflect the new forms of stress. Fresh formation of bad loans across sectors for state-run banks totalled ₹56,000 crore in the December quarter versus ₹34,500 crore three months earlier.

    The top half of a dozen publicsector banks — SBI, Bank of Baroda, Bank of India, Canara Bank, PNB and Union Bank — reported nearly 40 per cent higher average slippages across sectors over the previous quarter.

    For the top six private banks including HDFC Bank, ICICI Bank and Axis Bank, slippages moderated to ₹17,900 crore from ₹18,200 crore in the September quarter.

    Troubled accounts like Dewan Housing, Café Coffee Day, Cox & Kings, the Reliance Group of Anil Ambani and Suzlon continued to add to the banking sector’s woes, even as a cloud of doubt remained over the future due to the troubles in the telecom sector.

    “Agriculture SME stress was visible even in Q3, while retail and microfinance stress is on the rise and thus remains a key monitorable. Among small-mid size banks, most banks reported rising asset quality stress from the SME and mid-corporate segment,” Emkay Global Financial Services senior research analyst Anand Dama said. “We expect Q4 to see heavy corporate NPA resolutions, which coupled with some stress pull-back in agri and SME should lead to better earnings, mainly for corporate banks.”

    A recent India Ratings report said the proportion of stressed corporate assets declined to 17.9 per cent of total bank credit at end-September 2019 from 19.3 per cent in the same period a year earlier. This decline was primarily on account of write-offs of about 1.8 per cent of total bank credit, improvements in credit profiles of accounts amounting to 0.4 per cent of total bank credit and the base effect on account of 8.8 per cent annual credit growth. But despite data indicating that asset quality issues have moderated, fresh additions have continued, it said.
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