Power Sector Ceases to Trouble Pvt Banks

Power sector stress contributes nearly 17% of the overall debt of banks; next round of fresh slippages may also emanate from the sector. The quantum of power sector exposure of private sector banks will continue to restrict improvement in asset quality, as emphasised by bank executives in cautious comments after the June quarter results. For corporate-focused lenders, Axis Bank and ICICI Bank, the sector comprises a major chunk of their outstanding watch list, while Yes Bank flagged its energy sector exposure of close to 11% of the loan book. Axis Bank also guided for lumpy slippages from the power sector watch list exposure going ahead. Power sector accounts for close to 70% of its outstanding watch list of Rs 9,485 Cr. As such, power generation and distribution account for Rs 25,600 Cr, or 5.2%, of fund based and non-fund based outstanding loans of the bank. While Axis Bank said that even with increasing slippages from the outside of the watch list, it could meet its credit cost guidance for FY18, the private sector lender sees power sector stress from outside the watch list as a threat. ICICI bank, which has the highest exposure to the sector in absolute terms of about Rs 45,000 Cr, or 4.8% of its loan book, recorded an addition of Rs 1,420 Cr to its watch list from a power account classified below investment grade in the June quarter. With this slippage, the total outstanding exposure to power sector in the watch list stands at Rs 7,076 Cr, the highest for any industry. ICICI Bank has acknowledged that given the stress in the steel and power sectors, slippages from investment grade to below investment grade cannot be completely ruled out. The stress in the power sector has also reflected in the June quarter numbers of mid-sized private sector lender Yes Bank. While the bank has cut its power and electricity exposure to 10.6% in June from 11.3% in March and only 2% of its total exposure is non-operational, it has indicated that the stress in the sector is high and it will continue to adjust risk in the portfolio by steps like sell-down of loans.