Gross non-performing assets (NPAs), or bad loans, of state owned banks surged 56.4 per cent to Rs 614,872 crore during the 12-month period ended December 2016, and appear set to rise further in the next two quarters with many units, especially in the small and medium sectors, struggling to repay after being hit by the government’s decision to withdraw currency notes of Rs 500 and Rs 1,000 denomination.
WATCH | 56.4% Rise In Bad Loans Or Non-Performing Assets Of State Owned Banks
Bad loans have now shot up by 135 per cent from Rs 261,843 crore in the last two years, despite the Reserve Bank of India announcing a host of restructuring schemes. Bad loans now constitute 11 per cent of the gross advances of PSU banks, while total NPAs, including those for public and private banks, were Rs 697,409 crore as of December 2016, according to figures compiled by Care Ratings for The Indian Express.
At least five banks have reported gross NPA ratios (ratio of bad loans to total loans) of over 15 per cent. Indian Overseas Bank’s gross NPA ratio is 22.42 per cent, which means Rs 22.42 out of every Rs 100 lent by the bank is classified as a bad loan. UCO Bank has posted an NPA ratio of 17.18 per cent, United Bank of India 15.98 per cent, IDBI Bank 15.16 per cent and Bank of Maharashtra 15.08 per cent, the Care analysis reveals.
“The government needs to chalk out a plan for such banks.
Obviously, schemes to tackle stressed assets haven’t worked well. Many banks will miss the RBI deadline to clean up balance sheets by March 2017, with demonetisation now adding to the pressure,” a former chairman of a nationalised bank said.
Efforts of banks to recover bad loans were hamstrung by the redeployment of many staffers to branches in November and December after high-value notes were scrapped.
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State Bank of India managed to restrict NPAs to Rs 1.08 lakh crore for the December quarter as compared to Rs 1.06 lakh crore for the September quarter, but the numbers still showed a 48.6 per cent jump from Rs 72,791.73 crore a year ago. However, the bank posted a 134 per cent rise in Q3 net profit. Punjab National Bank and Bank of Baroda reported a decline in NPAs on a sequential quarter basis, but posted a year-on-year rise in bad loans to Rs 55,627 crore (from Rs 34,338 crore) and Rs 42,642 crore (from Rs 38,934 crore) respectively.
SBI, which accounts for almost half of the banking sector’s SME portfolio, said it was working on a scheme to support good small and medium units which were facing problems arising out of demonetisation and the slowdown in the economy. “We are working on the modalities of a scheme for SMEs with turnover up to Rs 25 crore. The scheme will be applicable to SMEs which were making profits, and are now finding it difficult to service their loan repayment or payment schedules,” SBI Managing Director Rajnish Kumar said.
The Reserve Bank has warned that public sector banks may continue to register the highest GNPA ratio and the system-level profit after tax (PAT) contracted on a y-o-y basis in the first half of 2016-17. “Under baseline scenario, the PSBs’ GNPA ratio may increase to 12.5 per cent in March 2017 and then to 12.9 per cent in March 2018 from 11.8 per cent in September 2016, which could increase further under a severe stress scenario,” the RBI’s Financial Stability Report said.
Various schemes announced by the RBI have remained largely on paper. Under the Strategic Debt Restructuring (SDR) scheme, banks were given an opportunity to convert the loan amount into 51 pc equity that was supposed to be sold to the highest bidders, once the firm became viable. “This measure was unable to help banks resolve their bad loan problem, as only two sales have taken place through this measure due to viability issues. It was observed that difficulties in finding buyers and disagreement over valuations were challenges in implementation,” said Care Ratings.
In the case of Sustainable Structuring of Stressed Assets (S4A) scheme, banks were unwilling to grant write-downs as there were no incentives to do so, and write-downs of large debtors could quickly exhaust banks’ capital cushions. The 5/25 scheme was derailed because the refinancing was done at a higher rate of interest so that banks could preserve the net present value (NPV) of the loan amount. There were few disclosures of the accounts getting refinanced under the scheme, and it was perceived that this was a tool deployed by banks to cover NPAs.
In the asset reconstruction scheme, the major problem was that asset reconstruction companies (ARCs) found it difficult to resolve the assets they had purchased from the banks and, therefore, wanted to purchase the loans only at low prices. Consequently, banks were reluctant to sell them loans on a large scale.
The RBI discontinued fresh corporate debt restructuring (CDR) with effect from April 1, 2016. Here, promoters’ equity was financed by the borrowed amount, that added the burden of debt servicing on banks. The CDR cell faced problems on account of delay in the sale of unproductive assets due to various legalities that were involved.
However, a section of experts say banks have reduced NPA levels through write-offs and restructuring, and no clear picture of bad loans emerges if all financial sector players are included.
“If you include Rs 400,000 crore writeoffs since 2000, then I will say Rs 10 lakh crore is the real NPA,” said K C Chakrabarty, former Deputy Governor, RBI.
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