Net bad assets of govt banks a third of their net worth

In response to an RTI query by The Indian Express, the Reserve Bank of India disclosed that 29 public sector banks wrote off a combined Rs 1.14 lakh crore of bad debt between 2013 and 2015.

Written by George Mathew , Khushboo Narayan | Mumbai | Updated: February 9, 2016 8:56 am
bad loan,  financial year, RTI, RBI, bank loan, raghuram rajan Reserve Bank of India

The net non-performing assets (NPAs) of state-owned banks — gross NPAs less provisions — at Rs 1.74 lakh crore at the end of September 2015 is equal to almost a third of their total net worth. In other words, if banks have to fully provide for all their bad debts, it would wipe out 33 per cent of their paid-up capital plus reserves and surplus.

In response to an RTI query by The Indian Express, the Reserve Bank of India disclosed that 29 public sector banks wrote off a combined Rs 1.14 lakh crore of bad debt between 2013 and 2015. This is more than one-third of the total gross non-performing assets of Rs 3.06 crore for public sector banks.

Looking at gross NPAs in isolation doesn’t give the full picture. Banks set aside money in the event of default or non-payment — these are called provisions. The net NPA numbers hide some unpleasant details.

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One, for some banks such as Indian Overseas Bank, they make up as much as 83.3 per cent at the end of the September quarter, according to Capitaline database. For 16 out of 25 public sector banks for whom data is available, this ratio is more than 33 per cent. The average for private sector banks is 4.9 per cent.

Under the fractional banking system, banks need a certain amount of capital to lend. If a large portion of its equity capital and reserves are wiped out, then a bank will not be able to lend freely, or it will have to wait for capital infusion from the government, which might not be forthcoming in times of a fiscal squeeze.

Two, banks have been able to reduce their NPA numbers by not only writing off assets, but also by restructuring or refinancing them. While this might save them temporarily from being classified as bad loans, they might turn irrecoverable if investment demand doesn’t revive.

Read | Rs 1.14 lakh crore of bad debts: The great government bank write-off 

“For banks, this is just the tip of the iceberg. It is going to get much worse. Especially when some of the big companies in the power and infrastructure sector face more problems,” Hemindra Hazari, an independent analyst, said.

After an asset quality review undertaken by the RBI in December, bad debts of some private sector banks rose sharply. For instance, ICICI Bank’s gross NPA jumped Rs 5,291 crore during the December quarter, the highest in nearly five years and that of Axis Bank increased by Rs 1,273 crore. Most large PSU banks are yet to report their December quarter numbers and it is only to be expected that their bad debt numbers will go up, experts said.

According to rating agencies, loan write-offs are likely to rise in the coming quarters. Rajat Bahl, Director, CRISIL Ratings, said, “Loan write-offs by banks in India have shown a rising trend in the last few years. They reached a level of Rs 50,000 crore for the public sector banks in 2014-15. Another Rs 25,000 crore were written off in the first half of the current financial year, 2015-16. While the pressure on banks to write-off will continue, the extent of write-offs is unlikely to rise significantly due to two reasons — first, PSBs usually write-off to the extent of cash recoveries that they have made during a year, and the recoveries are unlikely to be buoyant due to continued stress in the corporate sector. Second, their ability to take large write-offs will also be constrained by their weak profitability.”

“The quantum of provisions for loans that banks need to make, however, will continue to be high, reflecting the ongoing asset quality challenges,” Bahl said.

Vibha Batra, Group Head – Financial Sector Ratings, ICRA, said, higher write-offs are on account of around 3.5 times increase in the pool of gross NPAs to over Rs 3 lakh crore, even though write-offs as per cent of opening gross NPAs have remained in the range of 20-23 per cent. Considering further likely increase in gross NPAs and large stressed accounts, write-offs in absolute amount may continue to increase over next 12-18 months.

“With bad loans increasing over time, banks have been working towards lowering the same. While better credit practices and economic stability helps in controlling incremental NPAs, banks have also been writing off bad assets to strengthen their books. This in turn puts pressure on the profit and loss account, but can be considered to be necessary as a prudent practice. This will, to my mind, continue to increase until books are put in order,” said D R Dogra, Managing Director & CEO of rating agency CARE.

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  1. A
    Amit
    Feb 9, 2016 at 11:59 am
    IE pressutes not reporting Khujliwal Sarkar's Corruption sting by Congress.
    Reply
    1. H
      Haradhan Mandal
      Feb 9, 2016 at 6:22 am
      PSU banks and PSU companies are the most deprecated and scorned about by all in India- specially by the ELITE economist/columnist, DESI Business TYCOON, PRO-Liberalization groups, management gurus. But these companies are also used as the MILCH cow by both Govt and PVT sector enies. The so called 'Economic'Ministries (in collusion of PVT enies) have been exploiting these enies in many different ways. The NPA of PSU banks is part of that scenario. It is not just BAD bank loan.
      Reply
      1. H
        Haradhan Mandal
        Feb 9, 2016 at 6:04 am
        So the actual NPA is higher than 33% - if one adds the (1) Provisions (Banks own money) and the NPA which is hidden thru (2) restructuring or refinancing (Time buying) . And the TOTAL will be higher than 33%. And why the don't publish the names? If I am not wrong - the Bank employees ociations have been demanding it for more than a decade. They have a case also in Supreme court to force the govt to publish the names of defaulters.
        Reply
        1. M
          MyTake
          Feb 9, 2016 at 8:49 pm
          Good gift from Congress era indeed. 3 cheers!
          Reply
          1. T
            TIHAEwale
            Feb 9, 2016 at 5:07 am
            Things will further worsen when a chaiwala is leading a Govt and happy to pose for selfies and has no time for his RBI Governor who had warned him in good faith but our Feku56 happy with a crook who presided over DDCA
            Reply
            1. A
              ak dev
              Feb 9, 2016 at 8:44 am
              I still remember the stand taken by Jaitley for not disclosing the names of persons in black money list which was ultimately made public by court's intervention. Jaitley will protect the names of bank loan defaulters to the extent he can do. Only court's intervention whenever it comes will make these names public. Jaitley is not a pro-people finance minister. His actions of raising excise duty multiple times on petroleum products shows how conningly he rendered useless the free market pricing of petroleum prodycts.
              Reply
              1. A
                arvind
                Feb 9, 2016 at 6:01 am
                Congress and BJP are looting the country for decades.. Indian People are still stuck in hindu/muslim, beef, intolerance.. we are the one to be blamed..
                Reply
                1. A
                  ashok
                  Feb 9, 2016 at 1:06 am
                  Where is accountability in the age of technology why the banks couldn't have prevented. The only reason is the hand and glove of the top executives which includes the RBI. Now RBI and governor are waking up to clean but bad debts will continue again and again since RBI and the governor is unfit Mr Rajan should quit.
                  Reply
                  1. B
                    B.PRASANNAUMAR
                    Feb 9, 2016 at 3:49 am
                    Writing off was the old procedure. On the pretext of inability to recover the money they are using this old remedy in accounting. Now a days what is the difficulty in recovering the bad debts? Even Reserve Bank of India is also not making policy for recovery measures in the present world.
                    Reply
                    1. P
                      pani c
                      Feb 9, 2016 at 1:47 am
                      People have a right to know since when this has been happening and who are the defaulters. After writing off and funds infusion what is the guarantee that banks will not br back to the old days. What happens to the written off amounts ? Just forgotten or attempts will be made to recover whatever is possible ???
                      Reply
                      1. C
                        Col S
                        Feb 9, 2016 at 2:42 am
                        Thanks to IE for this service to the country. This crusade toSASVE ets of COUNTRY from NETA_ BASBU nexus must CONTINUE . Next STEP is to EXPOSE the HABITUAL DEFAULTERS. PRIVACY SHELTER must be BROKEN or the PUBLIC will thrasdh the GOVETNMENT. DO NOT FORGET , ity is hard earned FDs of small savers and TASX paid by AAM ADMI and not the rich/ super rich.
                        Reply
                        1. N
                          NLS
                          Feb 10, 2016 at 6:54 am
                          Colluding bank officials go scot free - they don't get penalized. Politicians who pressurize banks to lend have nothing to lose and are unaccountable. In the end, tax payer money is going down the drain due to these write-offs and governments want more taxes levied from the paying public. Pathetic governance, insuted and nourished by corrupt Congress!!
                          Reply
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                            ASHOK KUMAR
                            Feb 9, 2016 at 10:14 am
                            The net result of banks nationalization .
                            Reply
                            1. E
                              Enchanted Tunes
                              Feb 9, 2016 at 7:16 am
                              Banks are also corporate financial insutions. When private companies are not offered any bailouts, why are the banks being bailed out? Its like they are being awarded for their failure. Look at Iceland, they let their banks fail and today they have surped their GDP, that they had achieved before the financial depression. Link:
                              Reply
                              1. G
                                gajanan
                                Feb 9, 2016 at 6:30 am
                                Wilful defaulters are enemies of an economy. Stringent lawful action against them is not taken and they also create black money showing losses taking undue advantage of lack of punitive action.
                                Reply
                                1. K
                                  K M
                                  Feb 9, 2016 at 7:51 am
                                  Public sector banks have become number one enemies of public interest.
                                  Reply
                                  1. A
                                    Amitava Ghosh
                                    Feb 9, 2016 at 8:48 am
                                    The loan written off by the PSU banks are writing off the public money and as the tax paying citizens of India we are concerned. This amounts to a combined inefficiency of the Political masters of the Government and the Government officials and a potential for corruption. Yes some business might fail due to economic reasons , but there could be a great potential of syphoning of funds as well . The legal system of India should scrutinize them throughly and all such incidence of NPAs should be available in public domain and subject to RTI revelations. Since it is tax payers money being written off the tax payers have the right to k4 people typing...now why ?
                                    Reply
                                    1. K
                                      kissmachaddi
                                      Feb 9, 2016 at 3:57 am
                                      Modiji will fix all this mess......LMAO!
                                      Reply
                                      1. M
                                        madan gupta
                                        Feb 9, 2016 at 12:29 am
                                        फिर से बैंक को प्राइवेट किया जाये. अमेरिका में एक भी बैंक सरकारी नहीं है.
                                        Reply
                                        1. M
                                          Manisha
                                          Feb 9, 2016 at 3:29 am
                                          See promoters of companies like GMR. A clic case of crony capitalism. SIphon huge moneys in connivance with banks and politicians. Surprisingly such promoters are publicized as role models for their entrepreneurship by business channels, magazines and colleges. Case in example is Mr GM Rao's 'enreprenurial journey' last week organizewd by ICFAI in Hyderabad.
                                          Reply
                                          1. G
                                            Guest
                                            Feb 9, 2016 at 3:29 am
                                            When were all loans initiated? A detailed listing by each year and the Bank Name is necessary for people to know about.
                                            Reply
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