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Indian private lenders signal stress in loan book

Two top Indian private-sector lenders on Tuesday signalled stress in their loan books as the banks grapple with the worst economic slowdown in years that has increased bad loans across the sector.

Kotak Mahindra Bank Ltd, the nation’s third-largest lender by market value, trimmed its full-year loan growth forecast, while the sixth-biggest bank Axis Bank Ltd said its small business and small and medium enterprises categories have come under pressure due to delayed payments.

“We have enough capital, but we are seeing the economic environment go down rather than up,” Axis Bank Chief Executive Officer Amitabh Chaudhry told reporters at a news conference.

Indian banks, already saddled with nearly $150 billion in bad loans, are struggling to grow their lending activity as a slowdown in domestic consumption weighs on demand for credit.

The country’s economy expanded at just 5 percent in April-June, while credit growth at Indian banks dropped to the lowest level in nearly two years at end-September.

Kotak now expects credit growth for the year ending March above “mid-teen” percentage digits, joint Managing Director Dipak Gupta said at a news conference in Mumbai. The bank had earlier forecast growth of 20 percent.

The bank said it was seeing credit growth in most sectors, except in corporates.

Gross bad loans as a percentage of total loans at the bank, a measure of asset quality, ticked up to 2.32 percent at the end of the September quarter, from 2.15 percent a year earlier and 2.19 percent in the second quarter.

Axis Bank, however, showed a slight improvement in its balance sheet. Gross bad loans as a percentage of total loans eased to 5.03 percent by the end of September, compared with 5.25 percent in the previous quarter and 5.96 percent during the same period last year.

Still, for the three months to 30 September, Kotak’s net profit surged 51.1 percent to 17.24 billion rupees ($243.1 million)—its highest in at least 17 years, boosted by higher interest income and lower tax expenses.

Net interest margin (NIM), a key indicator of a bank’s profitability, rose to 4.61 percent from 4.19 percent last year.

Both banks reported a rise in the money they set aside to meet future losses. Provisions and contingencies at Kotak increased 15 percent, while provisions for bad loans rose 0.6 percent at Axis.

Even as lending remains under pressure, Kotak reported a better-than-expected quarterly profit on the back of higher interest income.

Axis reported a surprise quarterly loss due to a one-time tax charge. Excluding the charge, the lender would have reported a profit.

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