June quarter in review: Banking slippages rise as recast loans exit holiday period

New impaired loans, or slippages, rose for most private banks in the June quarter, according to quarterly results reported by Early Birds. The increase in stress reflects the impact of some restructured loans emerging from the status quo period and suggests that some borrowers may not yet be out of the woods of Covid.

The country’s largest private lender, HDFC Bank, recorded slippages worth Rs 7,200 crore, down from Rs 4,000 crore in Q4FY22. Some of the slippage comes from the restructured book. The bank attributed rising tensions in the agricultural lending segment and the slippage of a large wholesale account.

Srinivasan Vaidyanathan, chief financial officer of HDFC Bank, said on an investor call that agricultural and wholesale accounts contributed just over 10 basis points (bps) to the slippage ratio of 0.5%.

“Some of them (clients) have taken advantage of this restructuring opportunity and used it to return to normal life. Some of them who are still struggling to enter NPA (non-performing asset), but on on a combined basis, you see it continuing to get benign and improving,” Vaidyanathan said, adding, “One more quarter or two, we should see it even more benign.

Federal Bank slippages rose to Rs 444 crore from Rs 358 crore in Q4FY22. The retail banking and corporate segments led the gain, although agricultural slippages eased. CEO and CEO Shyam Srinivasan said the bank’s retail slippages for many quarters were around Rs 140-150 crore. “This quarter it is higher because the restructured portfolio will start to materialize in this quarter and the next. We had forecast an impact of around 20% and that is exactly what it is,” he said. -he declares.

Non-banking financial companies (NBFCs) are also seeing overhaul accounts hurting the overall quality of their assets. Slippages in the restructured pool of L&T Finance Holdings led to an increase in the cost of credit by Rs 250 crore despite the company using Rs 213 crore from its management overlay buffer, according to a report by ICICI Securities. “New forward flows from the restructured pool and (the cost of) the proposed exit from real estate finance could keep the cost of credit elevated in FY23,” analysts at the brokerage firm said.

The Reserve Bank of India (RBI) had unveiled two restructuring plans for borrowers hit by the vagaries of Covid-19 in August 2020 and May 2021. Earlier this year, the central bank warned of likely quality issues assets emerging from the banks’ restructured books.

“There is…a need to be mindful of the credit behavior of restructured advances and the possibility of increased slippages resulting from sectors that were relatively more exposed to the pandemic. With the unwinding of the support measures, some of the restructured accounts may face solvency issues, with the impact on banks’ balance sheets becoming clearer over the coming quarters,” the RBI said in its annual report for the exercise 22.

Some analysts have taken a more optimistic view of asset quality trends. On Thursday, S&P Global said in its global banking outlook that credit costs for India’s banking system would stabilize at 1.5% in FY23 and further normalize at 1.3%, making credit costs comparable to other emerging markets and India’s 15-year average. .

“The small and medium-sized business sector and low-income households are vulnerable to rising interest rates and high inflation. But, in our base case of moderate increases in interest rates, we consider these risks to be limited. With an economic recovery, the residual stress for these segments should start to ease,” said Deepali V Seth Chhabria, senior credit analyst at S&P Global.

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