Bank, FI NPAs set to rise this year

The recession in the global market has hit a number of diamond units in the country and in Surat alone, there are 2000 small and medium scale units engaged in thisbusiness. "The total exposure of banks and institutions in the gem and jewellery sector exceeds Rs 3,000 crore and the ongoing crisis has definitely affected their repayment capacity. Naturally, the banks will have no other option but to record these accounts as NPAs," said an official of Corporation Bank which has a huge exposure in the diamond sector. Many jewellery units in the Santacruz Export Processing Zone are already closed.

"The recovery of large scale export credit given to diamond exporters will also be affected," banking sources said. According to diamond industry sources, exporters have lost a whopping Rs 10,000 crore in the international business due to recession and the Asian currency crisis. The experience of Corpation bank is shared by a number of public sector banks as many of them had been reluctant to finance this business till recently.

"Corporation bank was having a very negligible level of NPA till recently, but the general economic slowdown will push up the NPA level to over Rs 100crore. During 1996-97, its NPA shot up to Rs 108 crore from Rs 54 crore. This year it is bound to go up further," sources said. Nationalised banks are not the only ones affected by the crisis in the diamond sector. Global Trust Bank, a leading private bank, has huge exposure in this sector. According to a credit rating agency, the bank has huge exposure to the gem and jewellery segment.

This is in addition to the recovery problems from various aquaculture units which are almost defunct after the virus attack and supreme court judgment. The closure of various polluting units in Delhi and Gujarat following the Supreme Court judgment also affected the NPA level of Bank of Baroda and others. Last year, BoB NPA was a whopping Rs 1,120 crore.

Other sectors where the banks will have some problem are the construction and real estate sector, textiles, iron and steel. "The total outstanding of banks from the construction sector exceeds Rs 2,000 crore. Several leading building companies like the Lok group havedefaulted in loan repayment. Even some of the leading private sector banks like the UTI Bank and Times Bank were also affected by the crisis in the construction business," banking sources said.

In the case of the Lok group which has huge outstanding to banks and institutions, the company has been negotiating with some of its bankers to sell some of the housing complexes for the bank employees. "Lok sold its earlier head office at Andheri to the Times Bank in lieu of some of the outstanding loans and the bank has acquired these premises to set up its branch," said a banker. Another leading construction house in Mumbai has also defaulted huge amounts to Syndicate Bank.

Even though Indian banks have decided to reduce their exposure in construction and real estate sector, they have to recover their outstanding from the sector. "Investment and lending to the construction and real estate sector is the most risky business as the current recession in the sector is one of the long lasting in the industry’shistory," said the chairman of a leading PSU bank. The exposure to the textile sector too will push up the bad debt of banks. As per the latest figures, the total exposure of banks to the textile sector is a whopping Rs 17,403 crore out of which cotton textiles account for Rs 7,543 crore. "The export from the cotton sector has come down so drastically that the repayment of some of the loans will be difficult. This will also affect the bank’s bottomline," sources said.