SMA-2 loans of banks reduce, NPAs fall in third quarter, indicating better asset quality

NPA

A number of banks have shown improvement, with the number of loans in their Special Mention Account (SMA) category reducing in the third quarter of the current financial year. Experts attribute this to lower slippages.

SMA 2 category loans are loans whose payments are overdue for between 61 and 90 days. “In this quarter, slippages have been low, so whatever was there in SMA-2 has either moved to the NPA category or have probably improved,” said Sanjay Agarwal, Senior Director, Care Ratings.

The improvement in the SMA-2 loans of the bank indicate that the overall asset quality of banks has improved and will remain robust going ahead. This means that loans under the category have either become standard (where repayment has begun) or have moved to the Non-Performing Assets Category.

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What does analysis show?

According to a Moneycontrol analysis, out of 10 banks analysed, six have shown an improvement, while in the remaining, SMA-2 loans have increased.

The banks that have shown an improvement include Indian Bank, Union Bank of India, Karur Vysya Bank, Central Bank of India, Bank of India, and Bank of Baroda.

On the other hand, those banks whose SMA-2 loans have gone up are State Bank of India, Kotak Mahindra Bank, IDBI Bank, and Canara Bank.

Satyanarayana Raju, Managing Director and Chief Executive Director of Canara Bank said during a call post results, that his bank has seen a downward trend in slippages quarter-on-quarter.

M V Rao, Managing Director and Chief Executive Officer, Central Bank of India said during a call, that the slippages were only on account of some temporary cash flow mismatches.

Overall asset quality

In the October-December quarter, a majority of the banks analysed reported an improvement in the asset quality. State Bank of India's gross non-performing assets (NPA) stood at 2.42 percent, down from 3.14 percent recorded in the corresponding quarter last year. On the other hand, net NPA for the quarter stood at 0.64 percent compared to 0.77 percent last year.

Similarly, Bank of Baroda's gross NPA stood at 3.08 percent, down from 4.53 percent in the year-ago period. On the other hand, net NPA stood at 0.70 percent, improving from 0.99 percent.

Kotak Mahindra Bank reported an improvement in the asset quality with gross NPA at 1.73 percent, down from 1.90 percent from the year-ago quarter. Net NPA was at 0.34 percent against 0.43 percent last year.

On the asset quality front, B. Ramesh Babu, Managing Director and Chief Executive Officer, Karur Vysya Bank, said during the analyst call that he expects to continue to maintain GNPA at below two percent levels.

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Way ahead

Banking analysts are of the view that in coming quarters, most banks are expected to report a fall in SMA-2 loans due to better asset quality of the banking system. “SMAs are likely to remain low now because the asset quality is pretty robust,” Agarwal said.