What bothers Yes Bank does not bother its bigger peers as much

• All of SBI’s windfall from SBI Life stake sale went into provisioning for bad loans.
• ICICI Bank stock could be re-rated based on its exposure to latest list of troubled firms.
• HDFC Bank’s retail loan quality has not deteriorated but slow pick up in auto loans might affect it in the future.
• Kotak Mahindra Bank is already affected by slow uptake in loans and its credit costs are also growing.

There has been a lot of fear around the health of Indian banks, including the large ones, for a while now⁠— largely due to rising bad loans. However, if you look at some of the top banks in the country⁠— like the State Bank of India (SBI), ICICI Bank, HDFC Bank, Kotak Mahindra Bank, and Yes Bank⁠— one would find that the factors that affect the earnings are largely different.

Yes Bank’s gross non-performing assets or basically loans where recovery is tough stands at ₹17,134 crore which is more than four times what it was in the same quarter last year-- ₹3,866 crore. And it might have more to come because of its extensive exposure to troubled shadow banks like Housing Development Infrastructure (HDIL) and Deewan Housing Finance (DHFL). Not just that, it also has exposure to Anil Dhirubhai Ambani Group and Essel Group as well.

In this regard, SBI has more to worry about the crisis in the country’s shadow banks, whereas Kotak and HDFC Bank are largely untouched by the same crisis because they lend more to individuals than corporates, while ICICI Bank too has managed to curb its exposure to troubled sectors like telecom and real estate financiers. The same cannot be said for Yes Bank, whose bad loans have been consistently rising over the last one year.




The SBI story

The fortunes of India’s largest bank State Bank India depends on the survival of the shadow banks that it has lent to. After the IL&FS debacle last year, a lot more are in the line and it has an exposure to Dewan Housing Finance which has not yet sunk but on thin ice.

Yet this quarter has been better than expected for SBI as its profits went up three times over from the same quarter last year. But that is not the best news it has received this quarter. Its slippages which is basically the extent of loans that have turned bad---have come down by half.

Going ahead, its health will depend on how it holds onto this number and DHFL’s survival is extremely important. But the bank is confident that its slippages will not go down below 2%. For a bank with a vast loan book, it is as high as ₹8,000 crore.

Basically, it’s a good enough quarter for SBI if its loans worth this ₹8,000 crore turn bad, and not more!

ICICI Bank has corrected its course over time

The country’s largest private bank ICICI Bank too has an asset quality problem and its extent of slippage is lower too. Its slippages came at ₹2,480 crore for the quarter -- at around 1.7% of its total loans. The improving asset quality has helped the stock price which has gained 17.2% in the last six months.

“Importantly, it displays no large stress exposure to some downgraded groups or emerging stress groups, while also has lower exposure to telecom, housing finance companies, non-banking financial companies and builders,” said a report by Prabhudas Liladher.


As much as ₹1,260 crore worth loans recovered to get off the ‘dud’ category and that is much better news. When banks have fewer bad loans on their books, they have to keep less amount aside -- as per regulations.

It means they will have more amount at their disposal to lend, which also doubles as growth money in case of banks. This will help the bank compete with other private banks on a war path of growth like Kotak Mahindra and HDFC Bank which are exhibiting double digit growth.

Individual borrowers in India are better in repaying loans than companies⁠— and that helps HDFC Bank and Kotak Mahindra.

While HDFC’s loan growth is at 15% from last year, in spite of the fact that this bank which lends to individuals instead of corporates is seeing lack of interest for two good segments -- auto and housing.

The loan book of Kotak Mahindra which has a mix of retail and corporate clients grew by 20%. But these banks will see the effect of slowdown that is lulling the economy.

“Slower-than-expected loan growth will likely delay the leveraging up process and higher than expected slippages and credit costs given weaker macros. Weakness in capital markets would impact the flow businesses,” said Nomura in a report on Kotak Mahindra Bank.

While other banks are offering lower rates for deposits, an aggressive Kotak Bank is offering rates as high as 8% to ensure it has enough money to lend to its borrowers. But that has also meant that it has a narrower profit margin.