Burst of bad loans in Q2: Bankers say it's a one-off

A big theme of the past few days has been the quantum leap in bank loan defaults as revealed in the second quarter numbers of some public sector banks. Loan defaults at Bank of India jumped by Rs 1,000 crore or 0.3% in just 90 days ie in the second quarter; in Union Bank they jumped by Rs 1,400 crore or one percentage point; at SBI bad loans jumped by Rs 6,000 croe or by 70 basis points to 4.2% of the total book. Thus, it was hardly surprising that Moody's downgraded its outlook on the sector.

In an exclusive interview with CNBC-TV18's Banking Editor Latha Venkatesh, two of the most prominent bankers in the country, MV Nair chairman of Union Bank and Diwakar Gupta managing director of the State Bank of India analyse why the situation has gotten worse and will it deteriorate further. They also talk about what are the deeper, more systemic issues and when will there be a U-Turn on asset quality. Below is the edited transcript of this exclusive interview. Also watch the accompanying video. Q: Not all banks have shown this kind of a jump as State Bank and to some extent even Union Bank and Bank of India. For instance Bank of Baroda and Canara Bank have not shown this kind of a rise. So is this a set of one-offs, which some players are facing or is there an industry problem? Gupta: Banks today can be classified into three categories. So you have three private sector banks (Axis, HDFC and ICICI) on the one hand, which have been really on top of the NPA situation. Then you have the BoB and the PNB, which have shown a rise, but it