Two top 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, the country's third-largest lender by market value, trimmed its full-year loan growth forecast, while the sixth-biggest bank Axis Bank 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.
The country's 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 economy expanded at just 5 per cent in April-June, while credit growth at the country's 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 per cent.
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 per cent at the end of the September quarter, from 2.19 per cent in the previous quarter and 2.15 per cent a year earlier.
Axis Bank, however, showed slight improvement in its balance sheet. Gross bad loans as a percentage of total loans eased to 5.03 per cent by the end of September, compared with 5.25 per cent in the previous quarter and 5.96 per cent during the same period last year.
Still, for the three months to September 30, Kotak's net profit surged 51.1 per cent to Rs 1,724 crore ($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 per cent from 4.19 per cent last year.
Both banks reported a rise in the money they set aside to meet future losses. Provisions and contingencies at Kotak Mahindra Bank increased 15 per cent, while provisions for bad loans rose 0.6 per cent at Axis Bank.
Even as lending remains under pressure, Kotak Mahindra Bank reported a better-than-expected quarterly profit on the back of higher interest income.
Axis Bank reported a surprise quarterly loss due to a one-time tax charge. Excluding the charge, the lender would have reported a profit.