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New stress, demand slowdown invoke caution on banks this fiscal

This quarter has been a quarter of caution. Banks like SBI and Axis reported an increase in slippages.

, ET Bureau|
Aug 06, 2019, 10.26 AM IST
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Higher stress, risk aversion and a slowdown in demand is likely to curtail credit growth for at least the next two quarters.
MUMBAI: New stress emerging from sectors like media, infrastructure, non-banking finance companies (NBFCs) and housing especially for some large corporate-focussed banks together with a slowdown in consumption demand, which is likely to impact retail loan growth, have made analysts cautious on the banking sector after the first quarter results.

Though the new stress emerging is not as massive as a few years ago when banks were forced to recognise legacy loans as non performing assets (NPAs), analysts said the fact that new sectors are coming on the watchlist is reason for caution.

“This quarter has been a quarter of caution. Large banks like SBI and Axis have reported an increase in slippages from new sectors and there has been some caution about potential increase in delinquencies from retail. Consumer demand is not great so we should expect that growth will be a few percentage points lower than what was expected earlier. On the whole FY20 seems like a tough year for the whole economy,” said Rajiv Mehta, executive vice presidentresearch at Yes Securities.

State Bank of India’s (SBI) fresh slippages increased to the highest in more than a year. Slippage ratio increased to 2.83 per cent from 1.95 per cent a year earlier and 1.60 per cent reported in the quarter ended March 2019. Axis Bank’s net slippages increased to ₹2,621 crore in June 2019 from ₹636 crore in March 2019 and ₹1,420 crore a year ago.

“Slippages for some banks have increased which means that though the worst is over in terms of asset quality, there could be some glitches. It is like the last few bumps on a roller coaster. But we have come off from a five year NPA cycle in which we have seen NPAs touching as much as ₹1 lakh crore for some banks so they can handle ₹10,000 crore to ₹15,000 crore. This is not a crisis but we could see some impact in the next two quarters,” said Nitin Aggarwal, analyst at Motilal Oswal Securities.

Higher stress, risk aversion and a slowdown in demand is likely to curtail credit growth for at least the next two quarters.
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