Rise in Bad Loans Beyond Watchlist Credit Negative For Axis, ICICI: Moody’s
Moody’s had expected the addition in bad loans for these banks to come from their watchlist accounts.
Axis Bank Ltd. and ICICI Bank Ltd. saw a significant additions to their bad loans from outside their watchlist accounts for the quarter-ended December 31,2016. A continuation of this trend will negatively impact credit profiles of these banks, Moody’s Investors Service said in a report.
"While we have been expecting asset quality to deteriorate for both, we had expected the deterioration to come predominantly from their watchlist accounts,” Moody’s said.
A bank’s watchlist is a list of clients whose financial performance has deteriorated.
In the quarter ended December 31, 2016, Axis Bank saw nearly 30 percent of its slippages from outside the watchlist, while the situation was slightly better for ICICI Bank, which saw slippages around similar levels compared to the previous quarter.
The situation was slightly better with the public sector banks, whose asset quality trends remained more benign, and the pace of deterioration slowed in the past two quarters, according to Moody’s.
The pace of asset quality deterioration has slowed down in the past two quarters from the levels seen in financial year 2015-16, data compiled by Moody’s showed.
The ratings agency highlighted that the earnings of Indian banks in the third quarter reflected sluggish credit demand from both companies and retail borrowers, as growth stalled following demonetisation.
Overall, demonetisation has significantly impacted credit demand and deposit growth.Srikanth Vadlamani, Vice-President And Senior Credit Officer, Moody’s
Moody’s expects adverse trends of demonetisation to continue till March 2017. In November last year, the government removed nearly 86 percent of bank notes from circulation in a bid to curb corruption.
“Looking ahead, while commentary from the banks point to a rise in activity in January, it is still below the levels seen in October, and we expect the quarter ending March, 2017 to show more adverse trends,” added Vadlamani.