Big Bank Big Borrowers Big Headache

Big Borrowers, Big Headache

Amit Bhandari, February 28, 2014       Banking regulator Reserve Bank of India (RBI) is worried about the increase in bad loans in the sector. RBI came out with new guidelines to deal with non-performing accounts (NPAs), which would mean more pain for promoters of defaulting companies. RBI has reason to worry – almost 5% of the outstanding loans of the Indian banking industry are currently NPAs. This adds up to a whopping Rs 2.4 lakh crore for the 40 top banks – much higher than either the profits or net worth of these lenders. Numbers available with IndiaSpend indicate that a disproportionate share of these NPAs come from a few large accounts.

Big borrowers are literally giving a big headache to the banking industry. In case of some banks, the top 30 defaulters account for over half of all their NPAs by value. For the entire banking system, almost 40% of all NPAs come from these top defaulters. Information available in the public domain suggests that some large defaulters – Kingfisher Airlines, Winsome Diamonds and Electrotherm India – are causing pain for several banks in the system. These defaults also indicate a worsening scenario for Indian business.

For instance, in the case of Punjab National Bank (PNB), the top 30 defaulters owed the bank a total of Rs 1,494 crore on 31^st March 2011. This means that, on an average, each of these defaulters owed the bank Rs 49.8 crore. For September 2013, the 30 largest NPAs of the bank added up to Rs 6,310 crore – meaning the average size of each bad account was Rs 210 crore. Clearly, these numbers indicate medium to large sized companies. These 30 defaults add up to 38% of all the non performing loans of PNB.

A similar trend can be seen for other public sector banks as well. In case of Andhra Bank, Corporation Bank, Dena Bank, IDBI Bank and a few others, over half of all outstanding NPAs come from the top few accounts.

For State Bank of India, the top 30 defaulters owed the bank a whopping Rs 8,775 crore – Rs 292 crore for each account. However, since SBI is far larger than other lenders, these account for just about one-seventh of the NPA portfolio. SBI is an exception in this matter. For most other public sector banks, this figure ranges from 30-50%.

(One clarification here – these figures are for the top 30 defaulters for each individual bank – not the 30 largest defaulters within the banking system.)
http://www.indiaspend.com/cover-story/big-borrowers-big-headache-95246