Banks create buffers to cover war-related credit risks

The geopolitical conflict has created risks for trade, supply chain and banking portfolios particularly those related to exporters and small and medium units. The supply chain disruptions caused input cost to rise by 20-35 basis points, people aware said.

Axis Bank took the lead with Rs 2001 crore one-time precautionary provision during the fourth quarter even as its gross non-performing assets ratio improved 17 basis points sequentially to 1.23% at the end of March.

“In an environment marked by uncertainty and volatility, our conservatism is our strategic advantage. We tried to strengthen the foundation and enhance our resilience,” Axis Bank managing director Amitabh Chaudhry said during the post-earnings media conference last week.

Among public sector lenders, Union Bank of India set aside Rs 700 crore one-time standard asset provision while Indian Overseas Bank and Indian Bank made additional provision of Rs 400 crore and Rs 300 crore respectively aiming to build a cushion against potential systemic risks, particularly for MSMEs and exporters.

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Union Bank of India managing director Asheesh Pandey told analysts that this additional provision would be used against any eventuality, either to cover risks arising due to the war or to cover the requirement for expected credit loss-based provisions.

Heads of the banks mentioned above maintained that the additional provision does not reflect building of stress but a step towards conservative and prudent risk management.

Indian Overseas Bank managing director Ajay Kumar Srivastava said he is anticipating spillover impact of the West Asia conflict on India’s micro and small enterprises units on account of the supply chain disruptions.

The additional buffer against the geopolitical risks is typically a separate cushion, besides the forward looking provision towards the imminent transition towards the expected credit loss regime from the current incurred loss-based provision system.

Private sector Federal Bank earned Rs 456 crore interest on income tax refund which it used to create floating bad loan provision without specifically earmarking it for war impact.

Meanwhile, these banks reported improvement in their asset quality sequentially.

“As we stepped into FY27, we are watchful of the ongoing uncertainties, however we stay confident in our ability to grow in a disciplined and calibrated manner,” Axis Bank’s Chaudhry said.

One-time war related provision

Axis Bank Rs 2001 crore

Federal Bank Rs 456 crore

Indian Bank Rs 308 crore

Indian Overseas Bank Rs 400 crore

Union Bank of India Rs 700 crore