Slippage Rate
The Slippage Rate measures the pace at which a bank's standard (performing) loans deteriorate into non-performing assets (NPAs) during a given period, reflecting the underlying stress in the loan portfolio.
Slippage refers to the fresh addition of NPAs during a quarter or year—loans that were performing at the start of the period but crossed the 90-day overdue threshold and were classified as NPA by the end of it. The Slippage Rate is expressed as a percentage of the opening standard loan book, making it comparable across banks of different sizes.
The formula is straightforward: fresh slippages during the period divided by the opening standard advances, multiplied by 100. A slippage rate of 2% means that 2% of the previously standard loan book turned bad during the year. During the Indian banking stress cycle of 2015–2018, aggregate slippage rates for public sector banks spiked above 4–5%, reflecting the scale of corporate and infrastructure-linked NPA formation.
Slippage data is disclosed in quarterly earnings presentations and analyst concalls by most listed banks. Analysts disaggregate slippages by segment—retail, SME, corporate, agriculture—because the risk drivers are different. Retail slippages are typically driven by job losses or personal income shocks; corporate slippages reflect business failures or promoter stress; agriculture slippages are often seasonal or linked to policy-driven waivers.
Gross Slippages and Net Slippages differ in that net slippages account for upgrades—loans that were NPA but have resumed payment and been reclassified as standard. If a bank reports high gross slippages but also high upgrades, the net NPA accretion may be modest. However, analysts are cautious about sustained reliance on upgrades, as they can sometimes reflect restructured loans rather than genuine recovery.
A declining slippage trend is one of the most important signals of a bank's improving credit cycle. India's aggregate banking system slippage rate fell sharply from its 2018 peak to below 2% by 2022–2023, reflecting the combined impact of IBC-led recoveries, write-offs of legacy bad loans, and improved underwriting in newer loan cohorts. Tracking slippage rates quarter on quarter is therefore essential for any bank-focused equity analysis.