Banking Sector Stares At Additional Rs 40,000 Crore In Bad Loans
RBI directed Axis Bank had to reclassify nine standard accounts as NPAs.
The banking sector fears that bad loans may increase by another Rs 40,000 crore after the central bank directed Axis Bank Ltd. to classify eight consortium accounts as non-performing assets.
The Reserve Bank has directed certain reclassifications in the private sector lender’s asset classification and provisioning as on March 2017, subsequent to the annual Risk Based Supervision exercise conducted for 2016-17.
As a result, Axis Bank had to reclassify nine standard accounts as NPAs. Of these, eight are part of consortium lending, according to the latest quarterly results announced by the bank. As on June 2017, Axis Bank claimed these nine accounts were classified as standard assets across most consortium banks, with only around 6 per cent of their outstanding classified as NPAs.
According to estimates, total outstanding loan of these accounts at the end of June 2017 were about Rs 42,000 crore. This decision has triggered fear among other consortium members about status of loan exposure to these accounts.
"It is going to have an impact on all the consortium lenders. Banks have to reconcile these accounts as NPA sooner or later. Reclassification by others may happen over two quarters," Suresh Ganapathy of Macquarie Capital Securities said. If they reclassify these assets as NPAs, banks have to make provision accordingly that could impact their bottom line, he added.
At the same time, banks would become cautious as far as fresh lending to these accounts is concerned because one of the consortium lenders has identified these accounts as NPA, a senior banker said on the condition of anonymity. Some banks may take pro-active measure of classifying exposure to these accounts as NPAs this quarter itself rather than waiting for the second half, the banker added.
Banks are already saddled with NPAs of over Rs 8 lakh crore and there seems to be no respite from the mounting bad loans as initial second quarterly numbers posted by some banks are not encouraging. Major contributors to the NPA mess have been power, steel, road infrastructure and textile sectors.
Sectoral distribution of the nine accounts, as declared by Axis Bank, includes one account in the steel sector with its exposure of Rs 1,128 crore. Besides, the power sector has three accounts amounting to Rs 1,685 crore as part of consortium lending, while four accounts comprise a total of Rs 911 crore to various sectors.
As per the RBI inspection, there was divergence of Rs 5,632.8 crore in gross NPAs of Axis Bank at the end of March 2017. Gross NPAs rose to Rs 26,913.3 crore as per the assessment of RBI from Rs 21,280.5 crore reported by the bank at the end of March 2017.
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