Private sector banks that announced their earnings for the October-December quarter (Q3) of 2024-25 (FY25) reported a rise in credit costs due to higher provisions, mainly for unsecured retail loans.
Axis Bank, Kotak Mahindra Bank, and RBL Bank, which announced their Q3 earnings, also reported a rise in slippages to non-performing assets (NPAs) in their credit card and microfinance segments.
They are hopeful of seeing normalisation in these portfolios by the second quarter (Q2) of 2025-26 (FY26).
Axis Bank’s credit cost rose to a multi-quarter high amid a rise in slippages due to seasonality and elevated provisions.
“In Q3, gross credit cost saw a sharp uptick of 38 basis points (bps) and a net credit cost of 26 bps quarter-on-quarter (Q-o-Q), up 74 bps, and 52 bps year-on-year (Y-o-Y), respectively.
“We believe credit cost will be higher than 2023-24 (FY24) levels,” said analysts at Elara Capital.
Axis Bank’s fresh slippages rose by 46 per cent Y-o-Y to Rs 5,432 crore from Rs 3,715 crore in Q3FY24, while loan-loss provisions increased to Rs 2,185 crore from Rs 691 crore in the same period.
“A normalisation cycle is in progress as far as retail asset quality is concerned.
“Our recognition and provisioning policies are perhaps the most conservative among peer banks.
“We expect this will stabilise over the next few quarters,” said Amitabh Chaudhry, managing director (MD) and chief executive officer (CEO) of Axis Bank during a media call.
Similarly, Kotak Mahindra Bank’s credit cost rose due to higher provisioning for its microfinance portfolio.
The credit cost increased from 0.65 per cent in Q2FY25 to 0.68 per cent in Q3FY25, and provisions rose 37 per cent Y-o-Y and 20.3 per cent Q-o-Q to Rs 794 crore.
“Credit cost spiked 20 per cent Q-o-Q despite lower slippage because of higher provisioning on microfinance slippage.
“The bank provides 50 per cent on 90 days and 100 per cent on 180 days for unsecured loans,” analysts at Nuvama said in a report on Kotak Mahindra Bank’s Q3 earnings.
Another private sector lender, RBL Bank, saw higher provisioning, which led to a rise in credit cost and a steep decline in net profit both sequentially and from the year-ago period.
The lender’s credit cost stood at 139 bps in Q3FY25, which includes 49 bps on account of additional provision on joint liability group (JLG) loans, compared to 48 bps in Q3FY24 and 80 bps in Q2FY25.
According to the management, the bank’s net slippages in the microfinance portfolio were Rs 521 crore, and credit cards were Rs 533 crore.
The provisions by the bank surged nearly 160 per cent Y-o-Y and 92 per cent Q-o-Q to Rs 1,188 crore.
It also made an additional provision of Rs 414 crore towards NPAs in JLG segment during the quarter.
“We continue to carry full contingent provisioning of Rs 273 crore, which should help us in dealing with above-trend slippage that we expect in the fourth quarter (Q4).
“We have seen a declining trend in slippages in cards, and while we expect the above-trend slippages in the JLG segment in Q4, the yearly bucket resolution numbers for December 2024 make us believe we should start seeing normalisation in this portfolio from the first quarter (Q1) or Q2FY26,” said R Subramaniakumar, MD and CEO of RBL Bank, in a post-earnings media call.
Despite the elevated slippages and higher provisioning, banks are hopeful of a moderation in slippages in the microfinance portfolio by Q1 or Q2FY26.
“We continue to see a rise in delinquencies, but there is a deceleration in the growth of delinquencies,” Ashok Vaswani, MD an CEO of Kotak Mahindra, said during the earnings call on microfinance loans.
“Microfinance should plateau, if not in the current quarter, potentially in the next quarter.
“On an overall basis, you will see a downward trend starting in Q1FY26,” Vaswani added.
