Potential stressed asset accounts on decline: Report

New Delhi: The bad loan situation appears to be improving for private as well as public sector banks (PSBs) as the pipeline of accounts that may turn into stressed assets is shrinking, says a report.

According to the Kotak Institutional Equities report, the overall trends on Special Mention Accounts (SMAs) portfolio is on a decline.

SMAs are those accounts that may turn into a stressed asset. Such a classification makes it easy to identify and tackle the problem better.

"The decline (in SMA) is visible in both public and private banks from a peak of 7-9 percent to 3.5-5 percent in second quarter of this fiscal year," Kotak Institutional Equities said in a report adding "maintain our view on impairment outlook as recovery is already underway".

"Most of the underlying operating performance of public banks is suggesting that the slippages are gradually easing," M B Mahesh of Kotak Institutional Equities said in the note.

"We don't expect a steep decline as we still have issues to be resolved, especially in the power sector. With relatively healthier provision coverage levels, we should expect banks to accelerate the resolution process," he said.

The report further noted that the overall SMA buckets have been declining on absolute as well as on ratio basis.

"Outstanding SMA portfolio has declined to 4.6 percent of loans in September 2017 from a peak of 8.4 percent in December 2015 when the RBI completed its asset quality review across banks," it said.

For public banks, the overall SMA book has declined to 5.3 percent of loans in the second quarter of 2017-18 as compared to a peak of 9.2 percent in the third quarter of 2015-16, the report said.

For private banks, the overall SMA book has declined to 3.5 percent in the second quarter of 2017-18 loans, from a peak of 7.6 percent of loans in the third quarter of 2015-16.

Meanwhile, State Bank of India saw its net bad loans ratio spike to 5.61 percent of advances, from 4.24 percent during the third quarter of 2017-18.

The gross dud assets ratio jumped from 7.23 percent to cross the double digits mark at 10.35 percent during the quarter under review.