Banks under stress; bad loans up 43% in H1FY14

India's banking industry continues its struggle with rising bad loans. CNBC-TV18 studied 13 largest banks that account 90 percent of the industry. The study showed a 43 percent jump in fresh bad loans or slippages in the first half of this fiscal, while total advances expanded by a mere 6.5 percent. What's worse, the study showed that restructured loans surged by an even scarier 81 percent during the same period. Bankers warn that asset quality could be in for more stress in coming months, reports CNBC-TV18’s Gopika Gopakumar.

Of the 13 banks analysed, public sector banks showed the sharpest rise in fresh slippages compared to the private sector during April-Septmber period. Within PSU banks, Punjab National Bank topped the list, seeing a 145 percent jump in new bad loans followed by IDBI Bank and Union Bank. Among the private sector, Kotak Mahindra Bank and Axis Bank figured in the top five banks with the highest slippages. Analysts expect more additions to non-performing asset (NPA) atleast for the next six months.

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Ananda Bhowmik of India Ratings said “So, possibly till March and maybe till June, we could see non-performing loans (NPLs) increasing albeit at a slower pace and then see a turnaround after that. However, I must caution that this is premised on gross domestic product (GDP) expansion being higher than 5 percent. In case the GDP remains tepid at current levels and margins of corporate were not to expand and if interest rates continue to rise then there could be wave of NPLs that could hit Indian banks about 12-15 months from now.”
There is little evidence that the NPL problem has peaked, but whether it will get worse, is yet to be seen.