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Oct 11, 2017 11:22 AM IST | Source:

Banks set to report grim September quarter financial results

Banks are set to report a troubled second quarter from July to September given the slow loan growth, insolvency accounts facing weak asset quality and higher provisioning.

Beena Parmar @BeenaParmar
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Banks are set to report a troubled second quarter from July to September given the slow loan growth, insolvency accounts facing weak asset quality and higher provisioning.

With 12 large corporate accounts in the insolvency proceedings, The Reserve Bank of India (RBI) has asked banks to set aside higher provisions against such loans, which contribute to 25 percent or about Rs 1.78 lakh crore of the total non-performing assets (NPAs) in the industry.

July estimates from India Ratings and Research, the local affiliate of Fitch Ratings, have said that banks will need to provide Rs 18,000 crore on top of existing provisions which will further dent their profits.

Additionally, there are 20-30 more accounts which have been referred by the RBI for quicker resolution by December or for quick action in the insolvency courts.

A senior analyst told Moneycontrol said that the recovery in the balance sheets of banks will take at least a year more. "I think the loan growth is still weak and post GST (Goods and Services Tax) and RERA implementation, a lot of consumption-led retail growth has also been impacted."

According to him, some mid-sized private sector banks such as IndusInd and Kotak Mahindra Bank may continue to have an edge over other banks. Largely, public sector lenders will face high credit costs impacting their interest margins and thereby profits.

On Tuesday, South Indian Bank reported a 96 percent drop in net profit as its provisions doubled because of diminution in value of a bad loan earlier sold to an asset reconstruction company (ARC).

Other major banks starting with IndusInd, will announce its financial results from Thursday. In a research note Edelweiss Securities said, "We expect Q2FY18 to be yet another soft quarter characterised by tepid revenue momentum and elevated credit costs.

"Earnings of retail-heavy private banks are expected to be stable. However, corporate-heavy banks are likely to incur elevated credit costs (ageing provisions, provisions on 12 accounts referred to NCLT by RBI), while impact of second list will be key monitorable," it further added.

Loan or credit growth has also remained tepid at around 6 percent given the muted investment demand.

India's GDP growth also was at its slowest pace in three years in April-June at 5.7 percent.

India Ratings, on Tuesday, said it does not expect capital expenditure from companies in the next 2-3 years. This will further stifle credit demand for the banking sector.

As per a Reuters report, sour loans for Indian banks have hit a record Rs 9.5 lakh crore (USD 145.56 billion) at the end of June, up from about 8.5 lakh crore in March.

"A review of Reserve Bank of India (RBI) data obtained through right-to-information requests shows banks' total stressed loans - including non-performing and restructured or rolled over loans - rose 4.5 percent in the six months to end-June. In the previous six months they had risen 5.8 percent," the report said.
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