BANK NPA WORRIES MAY NOT BE OVER
SBI'S GOOGLYThe management of SBI recently met Morgan Stanley and dashed any hopes that investors had of a turnaround in asset quality in FY13. SBI management indicated that gross and net new NPL formation during Q1'FY13 could be at `5000 crore and `3000 crore, respectively. This is higher than the outlook of `4000-4500 crore quarterly slippages run rate and `6000 crore of net new NPL creation in FY13. Management indicated that Q1 credit costs could be around 120 basis points. Restructuring during the quarter could be in the range of `2000-2500 crore.
RATE CYCLE UNLIKELY TO TURNThe Reserve Bank of India in its June mid quarter policy review stated clearly that any further reduction in interest rates hinges on the inflation trajectory. Inflation is likely to inch higher with a deficit monsoon and supply side factors playing spoilsport, it might be a long time before the RBI starts to cut interest rates aggressively.
ASSET QUALITY PRESSURES MAY PERSISTAfter having restructured massive amounts of exposure to the airline, steel, textile and State electricity boards banking sector may be forced to re-assess its exposure to the textile, power and agriculture sector in the coming quarters. This coupled with a decline in GDP growth, slowdown in industrial activity and no signs of a pickup any time soon may compound asset quality issues for most of the sectors including manufacturing.
SBI'S GOOGLYThe management of SBI recently met Morgan Stanley and dashed any hopes that investors had of a turnaround in asset quality in FY13. SBI management indicated that gross and net new NPL formation during Q1'FY13 could be at `5000 crore and `3000 crore, respectively. This is higher than the outlook of `4000-4500 crore quarterly slippages run rate and `6000 crore of net new NPL creation in FY13. Management indicated that Q1 credit costs could be around 120 basis points. Restructuring during the quarter could be in the range of `2000-2500 crore.
RATE CYCLE UNLIKELY TO TURNThe Reserve Bank of India in its June mid quarter policy review stated clearly that any further reduction in interest rates hinges on the inflation trajectory. Inflation is likely to inch higher with a deficit monsoon and supply side factors playing spoilsport, it might be a long time before the RBI starts to cut interest rates aggressively.
ASSET QUALITY PRESSURES MAY PERSISTAfter having restructured massive amounts of exposure to the airline, steel, textile and State electricity boards banking sector may be forced to re-assess its exposure to the textile, power and agriculture sector in the coming quarters. This coupled with a decline in GDP growth, slowdown in industrial activity and no signs of a pickup any time soon may compound asset quality issues for most of the sectors including manufacturing.
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