A customer waits to deposit Indian 100 rupee banknotes at a counter (Photographer: Dhiraj Singh/Bloomberg)

Fresh Trouble Brews For Bank Earnings Because Of These Five Accounts

There seems to be no end in sight to mounting bad loan worries for Indian banks.

On the one hand, banks are trying to recover dues using the Insolvency and Bankruptcy Code, and on the other, new accounts such as Infrastructure Leasing & Financial Services Ltd., Anil Ambani Group entities, Jet Airways (India) Ltd., Essel Group companies and Dewan Housing Finance Corporation Ltd. are casting a shadow over future earnings of Indian lenders. Some of these are already in default while others are stressed.

Fresh Trouble Brews For Bank Earnings Because Of These Five Accounts

BloombergQuint spoke to Kajal Gandhi, banking analyst at ICICI Direct; Yuvraj Choudhary, research analyst at Anand Rathi Securities; and Rati J Pandit, senior analyst at Sunidhi Securities; to understand what may hurt the earnings of Indian banks.

Jet Airways

Lenders have taken complete control of the now-grounded airline. They have also invited bids for selling stake in the debt-laden airline. The banks have a total exposure of Rs 8,500 crore in Jet Airways.

Here’s what the analysts have to say:

  • ICICI Direct: Jet Airways may reflect as a non-performing asset in the fourth quarter of the previous financial year or the first quarter of the ongoing fiscal. Public-sector lenders will avoid recognising it as an NPA in the fourth quarter unless it actually defaulted. The lenders might also avoid excess provisioning for the airline. Select private banks may recognise it as a bad asset. Some may make prudent provisioning.
  • Anand Rathi: Unless fresh capital is infused, Jet Airways would slip into NPA account in the first quarter of the financial year ending March 2020.
  • Sunidhi Securities: Banks will classify Jet Airways as an NPA if repayment is overdue for more than 90 days. Some lenders may also make contingent provisions from the fourth quarter of the 12 months ended March 2018 if shutdown continues for long or if there’s a delay in finding a suitable investor.

Anil Dhirubhai Ambani Group Companies

The recent concerns around Anil Ambani group companies stem from their deteriorating liquidity profile. While Reliance Communications Ltd. filed for voluntary insolvency, Reliance Capital Ltd. is trying to monetise its assets. CARE Ratings downgrading Reliance Home Finance Ltd. and Reliance Commercial Finance Ltd.’s debt securities to 'Default' citing delay in repayments only added to their woes.

Reliance Communications and Reliance Home Finance have total debt worth Rs 45,000 crore and Rs 13,538 crore, respectively.

Here’s what the analysts have to say:

  • ICICI Direct: RCom is already an NPA and some provisioning has also been done. Other ADAG group companies may be recognised as NPAs depending on their actual default. The accounts that faced rating downgrade may see prudent provisioning.
  • Anand Rathi: It depends on actual default by the companies and some banks may make contingent provisioning.
  • Sunidhi Securities: RCom is an NPA and banks have made 40-100 percent provisioning according to Reserve Bank of India’s guidelines as well as depending on the security cover available. Other group companies’ asset classification will depend on debt servicing timeliness and repayment capability. There may be prudent provisioning in case of specific exposures in financial services companies where some tranches are rated below investment grade, and those that have already defaulted will be classified as NPAs.


Payment defaults by the systematically important infrastructure group and its subsidiaries triggered fears of a contagion in the financial market. But the Reserve Bank of India and National Company Law Appellate Tribunal differ over whether to classify loans to IL&FS group as NPAs.

IL&FS group entities have a total debt of Rs 94,216 crore.

Here’s what the analysts have to say:

  • ICICI Direct: Some debt (around 40 percent) has been recognised as an NPA and provisioning has been made. More recognition may happen in the fourth quarter. Since banks have to mandatorily disclose exposure, they might as well provide it. Percentage of provisioning may differ from bank to bank.
  • Anand Rathi: Some banks may provide higher provisions for entries under ‘Red category’—IL&FS accounts have been classified into red, amber and green depending upon the likelihood of default.
  • Sunidhi Securities: The holding company, financial services entities and some group companies that defaulted earlier have already been classified as NPAs in the third quarter of the last financial year. But for a few other group companies/assets under stress, the banks are awaiting the NCLAT’s decision on RBI’s plea to classify the defaulting exposures as NPAs. Most of the entities classified as ‘Red’ have been recognised as NPAs earlier, but some classified as ‘Amber’ are showing stress and some additional provisioning is expected for them.

Essel Group

The Subhash Chandra-led Essel Group reached a formal agreement with its lenders, which gives the controlling entity of Zee Entertainment Enterprises Ltd. time till September-end to bring in a strategic investor and deleverage. Recently, two asset managers failed to return the entire money of unit holders of fixed maturity plans on account of a delay in repayment by Essel Group companies. The Essel Group has a total debt of Rs 17,174 crore.

Here’s what the analysts have to say:

  • ICICI Direct: The group has time till September to repay. The banks may put it under watchlist, but no provisioning is expected.
  • Anand Rathi: Some banks could make contingent provisioning. Haircut, however, is unlikely as the group’s core business is doing well.
  • Sunidhi Securities: Essel Group companies are a standard exposure and banks will continue to monitor how they will progress on the strategic sale of various businesses.


The housing finance company, with a total debt of more than Rs 1 lakh crore, was badly hit by the liquidity crisis triggered by payment defaults at IL&FS. Its loan disbursements fell 95 percent in the third quarter after the sale of its debt securities by a mutual fund at a significant discount sparked panic. Investigative media portal Cobrapost’s allegations that DHFL diverted loans through a network of shell companies only put further pressure.

Here’s what the analysts have to say:

  • ICICI Direct: The banks aren’t expected to initiate any action in the fourth quarter of the previous financial year but in the first or second quarter of the ongoing fiscal.
  • Anand Rathi: The company is servicing its loans regularly and hence, no action is expected.
  • Sunidhi Securities: DHFL and some other non-bank financial companies that are reported to have been facing liquidity issues should be able to continue to service debt by raising funds through loan securitisation.