Signs of rising asset quality stress spook Indian bank stocks

RBL Bank

20/01/2025 06:12

By Siddhi Nayak
       MUMBAI, Jan 20 (Reuters) - The stock prices of Indian
private lenders that have reported an increase in bad loans in
their personal loans and micro-credit businesses are bearing the
brunt of investors' fears of a U-turn in the asset-quality cycle
for the country's banks.
    RBL Bank's shares  RATB.NS  fell as much as 5.8% on Monday
after the lender reported a near 28% sequential jump in
quarterly slippages, or loans that were classified as
non-performing for the first time.
    Axis Bank  AXBK.NS , India's third-largest private bank,
forecast retail asset quality would take a few more quarters to
normalise. Its stock sank 4.5% on Friday and dropped a further
1.1% on Monday.
    Kotak Mahindra Bank  KTKM.NS , however, gained 9% after
reporting lower slippages than the previous quarter, although it
also warned that the stress in parts of its loan book would
persist.
    Indian banks are grappling with rising bad loans,
particularly in sectors such as microfinance, credit cards and
personal loans. Analysts have attributed this to over-leveraging
and an increase in loans outstanding per borrower. 
    The rise in delinquencies has forced lenders to allocate
more funds for potential losses and pare back loan growth in
these segments, which, in turn, hurts profitability.
    "The sign of stress that is visible across microfinance and
unsecured loans is a mild symptom of a tougher macro
environment," said Kranthi Bathini, director of equity strategy
at Wealthmills Securities.
    "That is largely because banks are conservative towards loan
growth, which coupled with tighter liquidity conditions, could
mean that an economic recovery could be prolonged."
    RBL Bank -- over 50% of whose slippages came from credit
cards and microfinance loans -- should start seeing a
normalisation in asset quality in the unsecured segment latest
by July-September, CEO R Subramaniakumar said on a post-earnings
call.
    Kotak's gross non-performing assets ratio worsened slightly
at the end of December and the lender said it would be cautious
about unsecured loans going forward.
    The stress "will take a couple of quarters to normalise,"
starting only from April-June, CEO Ashok Vaswani said at a media
conference on Saturday.
    Banks' gross NPA (non-performing asset) ratio could rise to
3% by the end of March 2026, from a 12-year low of 2.6% last
September, the central bank said in its Financial Stability
Report in December.

 (Reporting by Siddhi Nayak; Editing by Savio D'Souza)
 ((Siddhi.Nayak@thomsonreuters.com; +91 22 6921 7848; X: https://twitter.com/siddhiVnayak))