ICICI, Axis, SBI and PNB report sharp rise in bad loan recoveries

ICICI Bank, Axis Bank, State Bank of India and Punjab National Bank (PNB) have all reported a sharp rise in bad loan recoveries in the second quarter, largely due to improvement in retail collections that had fallen sharply in the first quarter through the second wave of Covid 19.
Bankers and analysts said the improvement in recoveries is another indicator of improving consumer sentiment and is a start of better asset quality for banks in the immediate future.

"Two things have happened in the last quarter - one is that recoveries from large corporate bad loans are catching up like we saw with the completion of the DHFL resolution," said Rajiv Anand, deputy managing director at Axis Bank.

"Two, retail payments that were hit due to the Covid second wave have caught up as economic activity has revived and customers have started making payments."

Anand was referring to the ₹37,400-crore recovery logged by lenders led by State Bank of India (SBI) in the last week of September in the resolution of Dewan Housing Finance (DHFL).

Financial creditors led by SBI had admitted claims of ₹87,000 crore. Of this, SBI alone had an exposure of ₹7,267 crore to the distressed home financier. A part of this and other retail recoveries have resulted in SBI's total recovery, with upgrades increasing 83% to ₹7,407 crore in September from ₹4,038 crore a year ago.

The story is similar for SBI's private sector peer ICICI Bank, which recorded a two-and-a-half-fold rise in recoveries and upgrades to ₹5,482 crore in September 2021 from ₹1,945 crore a year earlier.

ICICI's total recovery and upgrades are less than ₹1,000 crore shy of what the bank recovered in the whole of fiscal 2021 at ₹6,463 crore.

Axis Bank, too, more than doubled its recoveries and upgrades in the second quarter ended September 2021 to ₹4,757 crore from ₹2,026 crore a year earlier. Punjab National Bank (PNB) also reported almost a tripling in recovery and upgrades to ₹9,126 crore from ₹3,252 crore in the same quarter last fiscal. Analysts said the trend is clearly in favour of lower fresh slippages and increasing recoveries for the rest of the fiscal.

"The Covid hit portfolio, especially in the individual and loans to small enterprises segments and which were the main causes for slippages in the first quarter, are showing signs of a solid recovery," said Asutosh Mishra, head of research at Ashika Stock Broking. "Going forward, asset quality trends in the BFSI sector are looking better as we do not expect slippages to increase as they did last year."

Mishra said the fall in slippages also is a good sign for the improvement in bank asset quality.

SBI's slippages fell to just ₹4,176 crore in September 2021 from ₹15,666 crore in the quarter ended June 2021 as collection efficiency in retail loans improved to 95% after an end to mobility curbs. Net NPA ratio fell to 1.52%, down from 1.59% a year ago.

ICICI, too, reported a fall in its net NPA ratio that declined from 1.16% at the end of the June quarter to 0.99% at the end of the September quarter - the lowest since December 31, 2014.