In the current fiscal, banks are treading a rough path with increasing stress on assets and mounting provisioning for bad loans. The second quarter performance of many a bank reaffirms this. Bankers are keeping their figures crossed as far as the remaining quarters are concerned, pinning hopes on a possible revival in the economy.

“The second quarter this year has been among the worst for the banking sector as also for Andhra Bank. We have touched the bottom as far as stress on assets is concerned,” S.K. Kalra, Executive Director, told Business Line .

A visible trend has been the steep rise in provisions and contingencies. Though provisioning for wage and pension revision are being made, what is alarming is the quantum of money being set aside for non-performing assets (NPAs).

“A main reason for this was the need to make additional provisions for loan losses. Banks are increasingly resorting to corporate debt restructuring which calls for provisions,” said M. Bhagavantha Rao, Managing Director, State Bank of Hyderabad.

Banks had a major NPA cycle which started over a year back and substandard assets are now moving to a higher level. This means that on the same NPAs additional provisioning would have to be made.

TOUGH DAYS AHEAD

The going is expected to get tougher for banks as well as different sections of customers. Banks are worried about possible increase in slippages in sectors which have so far been largely immune to risks. The problems in the corporate sector have hit banks badly in the recent past.

These problems are now spreading to the micro, small and medium enterprises, observed Kalra.

“It is natural because if corproates have problems for a long duration, receivables of small enterprises will get adversely impacted,” said M. Anjaneya Prasad, Executive Director, Syndicate Bank.

The protection of net interest margins/profitability would be a major challenge in the remaining two quarters this year, he added.

All this would translate into higher rigour in due diligence of new advances and recourse to CDR.

“The CDR route is not easy now. The rejection rate in new CDR proposals has been increasing. A clear commitment from the promoters is also being sought by banks,” a top executive of SBI said.

SBI Chairperson Arundhati Bhattacharya had summed up the situation a couple of weeks back when she said would be more pain for banks. The business strategies are also being reworked by banks with greater focus on agriculture and retail advances.

naga.gunturi@thehindu.co.in

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