SBI, ICICI Bank and Axis Bank have more stressed assets than they have disclosed
Moneylife Digital Team 13 June 2016
State Bank of India (SBI), ICICI Bank and Axis Bank have stressed asset figures far in excess of those disclosed, based on the assumption of missing component. It will be worth closely watching the source of slippages emerging in second and third quarter of FY2017 for further evidence of the authenticity or lack thereof of the bank watchlists, says a research report from Religare Capital Markets Ltd.
"The asset watch lists declared by banks last quarter are highly subjective and differ widely in terms of stressed asset inclusion. This makes comparisons problematic and, more importantly, runs the risk of severe understatement of bad loans. We wanted to streamline the watchlists to enable a peer comparison and to garner a clearer idea of how well each bank really fares on the asset front," the report says.
Religare says, for Axis Bank, it added non-funded exposure to stressed sectors, 5:25 refinancing and the balance outstanding restructured or strategic debt restructuring (SDR) loans. Since ICICI Bank’s watch list was restricted to the top five sectors, the report says, it added exposure to other sectors (using Axis Bank's disclosures as a base) and also included restructured assets. For SBI, we incorporated the restructured assets, SDR or 5:25 exposure and potential bad power loans that had not been recognised in the bank’s watchlist, it added.
"(There are) massive gap between disclosed and derived watchlists," the report says, adding, "On running the adjustments mentioned above, we found that our derived watchlists were 35%–144% higher than those disclosed by the three banks. For ICICI Bank, our stressed list was 35% higher at Rs59,300 crore (5.5% of total exposure), followed by Axis Bank with a 39% variance at Rs31,500 crore (5.4%). SBI’s derived list was a shocker, coming in 2.4 times higher than management guidance at Rs76,500 crore (3.2%)."
According to Religare, the stocks (of these lenders) will react negatively, if more than 30% to 40% of corporate slippages come from outside the currently disclosed watchlists. It says, "We will be looking for the break-up of slippages between watchlist and non-watchlist assets, especially in second and third quarters of FY2017."
The report says, both Axis Bank and ICICI Bank have posted about 25% compound annual growth rate (CAGR) in retail loans in the last two years, while their unsecured loans have grown 25-30%. "If the corporate cycle fails to pick up and retail lending slows, we believe loan growth could come off to 12%-13% for both banks in FY18. Higher slippages from outside the watchlist and an increase in credit cost on retail and small and medium enterprises (SME) lending due to a slowdown in loan growth would keep credit cost elevated," it added.
Comments
Ravindra Shetye
10 years ago
Derived watchlist is a matter of judgement. e.g. If someone would have looked at the lending to JSW Steel (own as well as inherited from Ispat) one would have been definitely uncomfortable. However the insiders were less concerned because they were aware of the road ahead and the results ahead. Off course it is one thing in the PSU banks where the sins can be always put to the account of the past CMDs and write off bulk at one shot and be appreciated. In private Banks most of the time there is continuity and hence the management would not like to bring all sins at one time, but under a time plan.
Raj Shinestar Rock
10 years ago
thankss all
B. Yerram Raju
10 years ago
SBI walked into the trap of restructuring the SME portfolio to work with four verticals with each vertical not responsible for the decision of the other vertical. Its primacy in the SME portfolio has lost out to greed and unaccounted for drag in this business. Its due diligence, monitoring and supervision suffered a casualty. In a recent address by S.S. Mundra on Asset Quality he said: "It is not corporates alone that caused pain in the system. In several instances, the bankers have also not exercised due caution while conducting due diligence on the projects that they have financed. Some of the common shortcomings that the banks exhibited include:
4
 Governance deficit
 Poor credit appraisal particularly in infra financing such as highways where contracts were ‘gold plated’; Power which suffered from Faulty FSAs, absence of Pass through arrangements, lack of provision for termination payments etc.;
 Weak risk management;
 Chasing quick growth;
 Pretend and Extend" and I fully agree with him. Some banks fail to do the root cause analysis to learn from the past experiences. They have become complacent and arrogant. Unless this attitude changes, these banks are going to be a drag on the economy.
Ramesh Poapt
10 years ago
absolutely right! worst is yet to come! tighten your seatbelt1
Gopalakrishnan T V
10 years ago
The banks are taking the depositors, honest borrowers and tax payers for a ride. God save the country and the economy. There are no intentions to prevent the loot and the loot is justified, tolerated, subsidised and accommodated merrily. No one wants to fix these erring bankers and borrowers and all stake holders silently suffer as if the problem is insurmountable. though there can be a lasting solution to prevent the formation of Non performing Loans by being professional in the conduct of credit portfolio by banks and the conduct of business by the borrowers. When loot is the intention and all like minded parties join as there is no accountability of what so ever , nothing can be done but to bear the loss by the innocent and helpless masses.
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