Indian Bank Stocks Plunge as Concerns Over Bad Loans Intensify
2025-01-20
Author: Wei Ling
MUMBAI: Investors are hitting the panic button as stock prices of Indian private lenders tumble due to increasing fears about the deteriorating asset quality in the banking sector.
The alarming surge in non-performing loans, especially in the personal and micro-credit segments, is raising red flags across financial markets.
RBL Bank Faces Major Decline
On Monday, RBL Bank's shares saw a dramatic drop of 5.8% after revealing a staggering 28% quarterly surge in bad loans.
This sharp increase in slippages—loans that have been classified as non-performing for the first time—has sent shockwaves through the market.
Axis Bank Struggles Amid Declining Retail Quality
Axis Bank, the nation’s third-largest private bank, has also joined the ranks of institutions impacted by these trends.
The bank projected that it could take several more quarters for retail asset quality to stabilize.
Following this revelation, its stock plummeted 4.5% on Friday and continued its downward trajectory with a further 1.1% decline on Monday.
Kotak Mahindra Bank Defies Downtrend
In contrast, Kotak Mahindra Bank managed to buck the trend, witnessing a 9% increase in its stock value.
The bank reported lower slippages than in the previous quarter; however, caution remains as it warned of ongoing stress in certain areas of its loan portfolio.
Rising Concerns Over Bad Loans
The rise in bad loans is concerning, especially in high-risk sectors like microfinance, credit cards, and personal loans.
Experts suggest that these issues stem from over-leveraging and an increase in outstanding loans per borrower.
This upward trend in delinquencies has compelled banks to set aside larger reserves for potential losses, which, in turn, hampers overall profitability and forces lenders to scale back loan growth.
Expert Commentary on the Situation
Kranthi Bathini, director of equity strategy at Wealthmills Securities, stated, "The visible stress in microfinance and unsecured loans is just the beginning of a tougher macroeconomic environment."
He noted that banks are adopting a more conservative approach to loan growth amidst tightening liquidity conditions, which likely means any economic recovery will be slow.
Bank Leadership's Optimism Amidst Challenges
In a post-earnings call, RBL Bank's CEO R. Subramaniakumar expressed optimism, stating that they expect a normalization of asset quality in the unsecured segment by the July-September quarter.
Meanwhile, Kotak’s gross non-performing assets ratio showed a slight deterioration at the end of December.
CEO Ashok Vaswani acknowledged that the stress in asset quality "will take a couple of quarters to normalize," with expectations starting only from the April-June period.
Future Projections
According to the Financial Stability Report released by the central bank in December, the banks’ gross NPA (non-performing asset) ratio could escalate to 3% by March 2026, in stark contrast to a 12-year low of 2.6% recorded last September.
Conclusion
With fears of a prolonged economic slump looming large, the banking sector is bracing itself for challenging times ahead, putting investors on high alert.
As the crisis unfolds, the question on everyone's mind is: how long will the storm last for India's banking giants?