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Another painful quarter for banks 

April 13, 2016

Ravi Krishnan, Live Mint

It’s a no-brainer that the March quarter is going to be yet another painful one for Indian banks. The key things investors should watch out for are signals whether the pain ends with this clean-up or are there more skeletons waiting to tumble out from banks’ closets.

Most banks had given some guidance for impairment in the fourth quarter as a fallout of the Reserve Bank of India’s (RBI’s) asset quality review. This will naturally increase credit costs and continue to strain profitability. But a closer look is warranted because of both seasonal and one-time factors.

For one, it needs to be seen whether the increase in gross bad loans would arise from already restructured loans and from known weak sectors such as iron and steel, and infrastructure, or if it is more broad-based.

Second, investors should particularly concentrate on numbers for the 5:25 refinancing scheme, strategic debt restructuring and sales to asset reconstructors as these are the popular ways used to curb the rise in gross bad asset numbers. The March quarter is also the season for a surge in recoveries and that helps mask a rise in the headline number. Read more

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