Banks’ bad loans to cross Rs 2,00,000 crore by 2013
A day after global rating agency Moody’s raised concerns on deteriorating asset quality of banks, domestic rating agency Icra on Wednesday said that gross non-performing assets (NPAs) for the Indian banking sector are likely to cross Rs 2,00,000 crore and reach 3.6-3.8 per cent of gross advances as on March 31, 2013, up from 2.8 per cent as on March 31.
Standard restructured advances could move up to Rs 3,70,000-4,20,000 crore (6.5-7.5 per cent of advances) by March 31, 2013, as against Rs 2,30,000 crore as on March 31 and added that around 40-50 per cent of the banking sector’s exposure to the power sector may need to be restructured.( My Comment: As long as corrupt officers sitting at top posts are not punished , no power on earth can stop rising NPA in state run banks. FM will have to understand the real reason behind each NPA account and make case to case analysis. FM and RBI will have to distinguish between bad assets caused to bad intention of sanctioning officer or due to unavoidable problems.FM will have to penalize guilty officers and advocates in courts and district courts and DRTs who willfully delay the decision on bank recovery related cases for decades )
Public sector banks that account for around 70 per cent of the total loans given to companies have seen a sharp rise in bad loans over the last one-year. These banks also have a huge restructured portfolio. Take for instance, SBI, which had a gross NPA of around 5.15 per cent for July-September.
Icra said the pace of growth of the Indian banking system has moderated, and its asset quality indicators have deteriorated in 2011-12 and in ongoing financial year. The deterioration in asset quality has impacted banks’ profitability and solvency as incremental credit provisions (in relation to average advances) have increased from 0.96 per cent in 2010-11 to 1.1 per cent in Q1, 2012-13. Despite the higher credit provisioning, net NPAs, have increased from 1.1 per cent as in March 2011 to 1.5 per cent as in June 2012, leading to an increase in net NPAs in relation to net worth from 10.5 per cent as in March 2011 to 14.4 per cent as in June.
Icra warned that the asset quality may continue to slip further as the overall credit profiles of borrowers could weaken in this financial year due various reasons including high counterparty risk, structurally weak contracts and concerns over fuel linkages in the power sector.
“The incremental stress on bank’s asset quality could be more pronounced than the weakness in the credit profiles of companies as the current asset quality numbers possibly do not reflect the actual stress in the system. For instance the gross NPA for the industry segment is only two per cent whereas restructured advances are eight per cent. Some of these restructured accounts could slip into the NPA category,” said Icra.
Citing another example — the infrastructure sector, the rating agency said that this sector accounts for around 14 per cent of the domestic credit as of June and has NPA of only 0.6 per cent as of March 31, but, a sizeable chunk of the loans to the infrastructure sector is vulnerable because of factors such as delays in (and sometimes even cancellations of) regulatory clearances/licences, structurally weak contracts, weak credit profiles of state power distribution companies (discoms), fuel unavailability concerns, weak counterparties or stretched payments from state governments or government-owned entities.
The rating agency has pegged credit growth at 14.5-16.5 per cent for 2012-13 as against 17 per cent witnessed last year and profitability of banks to decline from 1 per cent in 2011-12 to 0.7-0.9 per cent in 2012-13.
Standard restructured advances could move up to Rs 3,70,000-4,20,000 crore (6.5-7.5 per cent of advances) by March 31, 2013, as against Rs 2,30,000 crore as on March 31 and added that around 40-50 per cent of the banking sector’s exposure to the power sector may need to be restructured.( My Comment: As long as corrupt officers sitting at top posts are not punished , no power on earth can stop rising NPA in state run banks. FM will have to understand the real reason behind each NPA account and make case to case analysis. FM and RBI will have to distinguish between bad assets caused to bad intention of sanctioning officer or due to unavoidable problems.FM will have to penalize guilty officers and advocates in courts and district courts and DRTs who willfully delay the decision on bank recovery related cases for decades )
Public sector banks that account for around 70 per cent of the total loans given to companies have seen a sharp rise in bad loans over the last one-year. These banks also have a huge restructured portfolio. Take for instance, SBI, which had a gross NPA of around 5.15 per cent for July-September.
Icra said the pace of growth of the Indian banking system has moderated, and its asset quality indicators have deteriorated in 2011-12 and in ongoing financial year. The deterioration in asset quality has impacted banks’ profitability and solvency as incremental credit provisions (in relation to average advances) have increased from 0.96 per cent in 2010-11 to 1.1 per cent in Q1, 2012-13. Despite the higher credit provisioning, net NPAs, have increased from 1.1 per cent as in March 2011 to 1.5 per cent as in June 2012, leading to an increase in net NPAs in relation to net worth from 10.5 per cent as in March 2011 to 14.4 per cent as in June.
Icra warned that the asset quality may continue to slip further as the overall credit profiles of borrowers could weaken in this financial year due various reasons including high counterparty risk, structurally weak contracts and concerns over fuel linkages in the power sector.
“The incremental stress on bank’s asset quality could be more pronounced than the weakness in the credit profiles of companies as the current asset quality numbers possibly do not reflect the actual stress in the system. For instance the gross NPA for the industry segment is only two per cent whereas restructured advances are eight per cent. Some of these restructured accounts could slip into the NPA category,” said Icra.
Citing another example — the infrastructure sector, the rating agency said that this sector accounts for around 14 per cent of the domestic credit as of June and has NPA of only 0.6 per cent as of March 31, but, a sizeable chunk of the loans to the infrastructure sector is vulnerable because of factors such as delays in (and sometimes even cancellations of) regulatory clearances/licences, structurally weak contracts, weak credit profiles of state power distribution companies (discoms), fuel unavailability concerns, weak counterparties or stretched payments from state governments or government-owned entities.
The rating agency has pegged credit growth at 14.5-16.5 per cent for 2012-13 as against 17 per cent witnessed last year and profitability of banks to decline from 1 per cent in 2011-12 to 0.7-0.9 per cent in 2012-13.
Thu, Dec 06, 2012 at 14:00
Banks should take fresh steps to speed up NPA recovery: FM
State-owned banks have been asked to take fresh steps to speed up recovery of non-performing assets (NPAs), Finance Minister P Chidambaram said in the Rajya Sabha
State-owned banks have been asked to take fresh steps to speed up recovery of non-performing assets (NPAs),Finance Minister P Chidambaram said in the Rajya Sabha today.
"Government has advised public sector banks to take a number of new initiatives to increase the pace of recovery and manage the NPAs, which include appointment of nodal officers for recovery, to conduct special drives for recovery of loss assets," he said during the Question Hour. He said the "stress" in the economy is reflected in the increasing NPAs and they will come down once the economic situation improves. He also said a bit of handholding is required for the stressed sectors.
The Finance Minister said banks are obliged to follow RBI guidelines regarding recovery of loans. Referring to concerns of members on use of muscle men by banks for recovery from poor people, Chidambaram said he has asked the heads of the banks that recovery must be done in a "respectful manner".
The minister said he will again tell banks to be compassionate in recovery from poor borrowers. If specific cases of use of muscle men is brought to notice, "severest action" will be taken, he said. Besides, "no special favour" will be shown to large borrowers by banks in recovery of loans, he said. "I will not allow" banks to give special favours to large borrowers." Banks are required to monitor their NPAs and take steps to bring them down through upgradation and recovery among others. RBI also monitors the NPA levels in banks.
(My comment: FM is trying to confuse the bankers by building pressure on them for expeditious recovery of bad loans without taking any action against neither guilty bankers nor guilty advocates and judges working in nexus with bank loan defaulters. For last one decades bankers were concealing bad debts willfully to win the hearts of FM and now these clever bankers are blaming global crisis or economic slowdown for rise in bad assets. Obviously they will have to first learn to speak truth and accept the guilt and then only they can rightly cure the system.. I therefore do not hesitate in saying that FM is equally responsible for escalating bad assets in state run banks. In fact ruling government has exploited and has been exploiting state run banks for political gain.)
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