SBI tops list: Bad loans of banks almost double to Rs 629K cr in a year

Bad loans of PSBs rose from Rs 2,85,748 crore last year to Rs 5,71,443 crore by June 2016.

Written by George Mathew | Mumbai | Published: August 19, 2016 1:20 am

Banks, which are racing to clean up their balance sheets have come out with a whopping 96 per cent jump in non-performing assets (NPAs), or loans which remain overdue for a period of more than 90 days, to Rs 6,29,774 crore as of June 2016 as against Rs 3,20,553 crore in the same period last year. The sharp rise follows the Reserve Bank instruction to banks to classify around 130 stressed accounts as NPAs and make adequate provisioning for them.

State Bank of India led the list with its gross NPAs soaring to Rs 1,01,541 crore during the June quarter from Rs 56,420.77 crore in the year-ago period. For this quarter, the gross NPAs of banks had almost doubled (96 per cent) with the ratio of gross NPAs to advances increasing sharply from 4.6 per cent to 8.5 per cent of their advances. “These high numbers were accounted for by the PSU banks which had witnessed 100 per cent growth in NPAs and virtual doubling of the gross NPA ratio from 5.3 per cent to 10.4 per cent,” said a study by Care Ratings.

Bad loans of PSU banks rose from Rs 2,85,748 crore last year to Rs 5,71,443 crore by June 2016, indicating that the RBI’s asset quality review has unearthed Rs 2,85,695 crore bad debts in their books. “Banks had to stop window-dressing their loan accounts following the strict monitoring of the RBI. There was no evergreening of loans in the last two quarters,” said a banking source.

Private banks were also under pressure with 68 per cent rise in gross NPAs from Rs 34,805 crore last year to Rs 58,331 crore this year and their NPA ratio increased from 2.15 per cent to 3.03 per cent.

Banks were finding the going tough in view of the sharp increase in provisioning, mainly for NPAs that also affected growth in profit before tax which declined sharply. “Some banks, especially in the public sector had to make higher provisions in a bid to clean up their balance sheets. Others were pressurised by their move to shrink their balance sheets which in turn increased the NPA ratio. These moves have been undertaken as part of the consolidation drive by banks to put their accounts on stronger footing. It is expected that these NPAs will tend to decline in the next two quarters,” Care Ratings said.

Bankers, however, said the bad loan issue will blow over in the next two quarters. “I think the pain will continue for one or two more quarters and it will vary from bank to bank based on their exposure to stressed borrowers and sectors. In the case of genuine borrowers, they are monitoring stressed assets closely to resolve various issues and giving support. I am sure that if genuine borrowers are supported, they will shortly come out,” said Indian Banks Association chairman Ashwani Kumar.

VS Narang, chief financial officer of Bank of Baroda said, “We have already seen in FY 2016, NPAs were Rs 40,000 crore. In the current year, in terms of number the gross NPA level should be somewhere between Rs 45,000 crore and Rs 50,000 crore. The numbers are increasing. But the pace of increase in accretion of NPAs definitely has come down.”

While unveiling the monetary policy last week, RBI Governor Raghuram Rajan had said he is comfortable with the stressed assets recognition process — asset quality review — undertaken by the banks. “Broadly speaking we are comfortable with the recognition process that banks have certainly taken. Some banks have taken more steps than we required them to take. So the culture of cleaning up seems to be well embedded as well as a culture of recovery on some of the loans,” Rajan said.

The RBI has said the clean-up of PSU banks would be over by March 2017. “Unfortunately, too many projects were left weakly monitored, even as costs increased. Banks may have expected the lead bank to exercise adequate due diligence, but this did not always happen. Moreover, as a project went into distress, private banks were sometimes more agile in securing their positions with additional collateral from the promoter, or getting repaid, even while public sector banks continued supporting projects with fresh loans. Promoters astutely stopped infusing equity, and sometimes even stopped putting in effort, knowing the project was unlikely to repay given the debt overhang,” Rajan said in a recent speech. The RBI has also asked banks to stop lending to unviable projects.

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