It’s not only public sector banks (PSBs) that are fighting the bad-loan monster.
Non-performing assets (NPAs) — loans that do not yield returns — at private sector banks have risen quicker than those by PSBs in the first nine months of the current fiscal year.
In the last nine months (April-December 2015), gross NPAs of private banks rose 39% to Rs 1,16,334 crore, compared with a 34% growth to Rs 10,15,219 crore for state-owned banks.
However, according to analysts, the rise in NPAs for private banks may also be due to their pace of loan growth, which climbed 17% in the last nine months, compared to a drop of 18% for PSBs.
According to rating form ICRA, private banks’ loan book grew three times faster at 18.3% than government-owned banks, which saw a drop in credit growth to 6.2% as on September 2015.
Moreover, since private banks have been proactive in treating bad loans, weak corporate and economic conditions may have prompted them to recognise the pain early on, helping them address certain NPA issues, analysts added.
In fact, a review of the data released by the Reserve Bank of India (RBI) show that the rate of growth in bad loans at private banks has been equal to their state-owned counterparts, if not more.
Total outstanding loans by private sector banks stood at Rs 14.33 lakh crore, 20.8% of their total credit as on March 2015, according to RBI data. In comparison, PSBs had total outstanding loans of Rs 34.47 lakh crore, over 50% of the total credit.
In the last fiscal year (2014-15), 19 nationalised banks (excluding State Bank of India and its associates) showed a 39.8% year-on-year rise in gross non-performing assets (NPAs) at Rs 192,270 crore.
Now, contrast this.
During the same period, gross NPAs at new private banks grew 35.3% year-on-year to Rs 24,534 crore. New banks include Axis Bank, DCB Bank (Development Credit Bank), HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Yes Bank.
ICICI Bank, the country’s largest private lender, alone recorded a 43.7% rise in gross NPAs at Rs 15,095 crore.
It is because of the surge in bad loans that profits of these lenders came under pressure in the quarter ended December. For example, ICICI Bank’s profit growth of 4% was the lowest in the last 23 quarters. Axis Bank’s net profit growth of 15% was the lowest in the past 11 years.
“Most top banks, including private sector, have seen significant exposure to vulnerable sectors such as infrastructure, power and steel,” said Vibha Batra, vice-president at ICRA. “Also, the base is smaller, which could show a bigger percentage increase,” she added.