Q3 earnings: Private lenders deliver on profitability, but slippages a concern

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26 Aug, 2025 12:21

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Private lenders have reported healthy profits in the December-ended quarter on back of recoveries from resolutions and lower cost of funds. However, their slippages remained elevated with additional bad loans being higher than the first half in some cases.

With interest rates on the downtrend, thanks to five consecutive rate cuts by the Reserve Bank of India (RBI) in 2019, and surplus liquidity conditions since past few months, banks were able to reset their deposit rates leading to lower cost of funds in the third quarter.

Indusind Bank reported higher net interest margins (NIMs) at 4.15 percent in third quarter, from 3.83 percent in same period last year, on lower cost of funds. ICICI Bank's NIMs also rose to 3.77 percent, which was a multi-quarter high.

While bulky recoveries from bad loan resolutions like Essar Steel in third quarter led to write back in provisions, fresh accounts that turned sour limited its impact.

ICICI Bank posted 158.4 percent growth in net profit for October-December, but its slippages more than doubled to Rs 4,363 crore in the third quarter, as compared to Rs 2,091 crore in the same period last year.

Apart from Karvy Stock Broking and a South India-based industrial company, ICICI Bank also saw slippages from retail and agriculture loans.

Also, while its provisioning coverage ratio was higher at 85.7 percent, the bank has not made any extra provisions towards the troubled telecom sector despite having most of its sectoral exposure (1.8 percent of loan book) to the top two players. Its stressed loans list is also likely to remain high going ahead.

Kotak Mahindra Bank added Rs 1,062 crore worth of bad loans in December-ended quarter, a third of which came from corporate loans outside its watchlist. Its Joint Managing Director Dipak Gupta said that these were "unknown unknowns" referring to highly-leveraged, top-rated companies that unexpectedly defaulted on loans.

Most lenders also reported higher slippages after accounting for divergences from RBI's assessment of their bad loans as reported in 2018-19.

In terms of credit growth, demand from corporates remained subdued, while retail loans grew at a healthy pace.

"Axis Bank reported steady loan growth amidst economic slowdown, led by continued momentum in the retail business. However, the slippage trajectory remains elevated with 'BB & below' pool driving most of the corporate slippages," said analysts Nitin Aggarwal and Himanshu Taluja, Motilal Oswal in a report.

Axis Bank's watchlist or the below ‘BB’ rated loan book stood at Rs 5100 crore at the end of December 2019, with Rs 900 crore worth of fresh additions to the list in the quarter. However, the bank said that the pool of stressed assets has eased to a seven-year low level, which is less than 3 percent of the corporate loan book.

HDFC Bank reported 33 percent growth in net profits but its asset quality weakened due to slippage in agriculture loans that more than doubled from last year. "Although, net non-performing assets (NPAs) were higher than estimated, HDFC Bank's overall provision cover, including floating, contingent, and standard asset provisions increased 500bps from previous quarter to 119 percent of gross NPAs," said analysts Ravikant Bhat and Prithvish Uppal, IndiaNivesh.

Smaller private lenders like DCB Bank, RBL Bank and Federal Bank did not have a smooth quarter.

"Federal Bank's operating performance was lacklustre on various fronts. While the headline slippages were higher, the silver lining was these were largely driven by known-stress in the corp book, and granular slippages were contained," said Darpin Shah, Analyst, HDFC Securities.

DCB Bank, on the other hand, also cut its PCR to 53 percent from 63 percent amid deteriorating asset quality, which was disappointing, Anand Dama, analyst from Emkay Securities pointed out. The bank's gross NPAs on vehicle loans rose to 5.6 percent from 4.4 percent in previous quarter.

RBL Bank reported a 69 percent drop in net profit for October-December quarter, due to a spike in provisions and expects more slippages from its watchlist in the last quarter of current financial year. The bank saw slippages of Rs 1,048 crore in the third quarter. Of this, about Rs 700 crore came from the watchlist that comprises of 3-4 accounts.