Falling provisions set to lift banks’ RoA in December quarter – News Air Insight

ET Intelligence Group: The bad loans provisioning by banks is likely to remain soft in the December quarter after hitting a seven quarter low in the previous quarter, aided by improving collection efficiency and falling slippages. In addition, stress in the unsecured portfolio is expected to abate gradually, which should support return on assets (RoA). For a sample of 29 banks, provisioning for non-performing assets (NPA) fell by 15.3% year-on-year to ₹21297 crore in the September quarter after rising in the previous three quarters between 9% and 20%.

The fall in the loan loss provisioning was led by the PSU banks, which reported 42% year-on-year decline in NPA provisioning.

Majority of the PSU banks, 10 out of 12 to be precise, reported a year-on-year fall while State Bank go Indian and Indian Overseas bank recorded an increase. On the other hand, private sector banks in the sample showed 22% jump in the NPA provisioning.

Analysts expect improvement in the performance of banks from the December quarter, after a weak first half of the fiscal year, on the back of rising credit growth, easing cost of funds pressure and improving asset quality. “Asset quality remains broadly stable across banks, with slippages moderating and collection efficiencies improving through the second quarter and into the third quarter,” noted JM Financial in a sector report. The broking firm expects overall credit costs to be around 0.6% in the December quarter, similar to the previous quarter.

Motilal Oswal Financial Services (MOFSL) expects private and PSU banks to report contained credit costs. “…select mid-sized private banks with high exposure to unsecured/microfinance portfolios should see improving credit costs as stress abates, supporting a better RoA outlook in the second half of FY26 and in FY27,” the broking firm said in a report.