NPA reduction — foreign, pvt banks worse than Govt banks

Although the RBI report `An Econometric Analysis of Profitability of Indian Banks’ said PSBs showed remarkable performance even with a lower interest spread compared to the foreign banks during the period, bankers feel that "PSBs have miles to go before reducing NPAs." The interest spread of PSBs marginally fell by 0.38 per cent to 2.07 per cent from 3.08 per cent while there was 0.11 per cent rise in the spread to 3.85 from 3.74 per cent for the foreign banks, it added.

Old private sector banks and new private sector banks too had shown a rise in the ratio, the study said. The ratio for old private banks rose by more than two per cent to 7.33 per cent from 4.51 per cent in 1995-96, even as the interest spread fell by 0.81 per cent during the same period. The NPA ratio in new private banks rose by less than one per cent to 2.87 per cent from 1.97 per cent even with a 0.87 fall in the interest spread for the corresponding period, the report said.

The RBI report, however, said the inter-bank differences progressively coming down since the gap between the highest and lowest NPA ratios fell to 5.05 per cent from as high as 8.10 per cent during 1995-2000. "Though there had been improvements in the performance of PSBs, the NPA ratio of PSBs was still quite high," the RBI noted. Excepting for PSBs, the amount of sticky assets with foreign, old and new private banks rose steadily to reach new highs during 1998-99, the report pointed out.

For old private banks, it rose significantly to 8.96 per cent from its lowest level of 4.51 per cent and for new banks it went up to 4.46 per cent from 1.97 per cent, while it was 2.94 per cent for foreign banks from the lowest 0.81 per cent, it said. During the year 1999-2000, PSBs had the highest ratio of net NPAs to net advances as it stood at 7.42 per cent while the ratio for all scheduled commercial banks stood at 6.80 per cent during the same period, the RBI study said.

"Given the level of capital adequacy ratio, high NPAs will warrant higher provisioning or decline in income," the report said. The NPA ratio for old private banks was 7.33 per cent and 2.87 per cent for new generation banks during the corresponding period, it added.

However, government banks still account for the lion’s share of NPAs in the banking system. The gross NPAs of banking industry soared to Rs 60,841 crore as on March 31, 2000 as compared to Rs 58,722 crore in the previous fiscal, a whopping jump of Rs 2,119 crore. The RBI’s `Report on Trend and Progress of Banking in India for 1999-2000′ says gross NPAs of public sector banks alone have increased from Rs 51,710 crore in 1998-99 to Rs 53,294 crore in 1999-2000, while net NPAs increased to Rs 26,188 crore from Rs 24,211 crore in 1998-99.

The NPA level of private and foreign banks work out to around Rs 7,500 crore. "State-run banks at least realised the importance of reducing NPAs. On the other hand, foreign banks seem to be accumulating more NPAs," said a banker.