Gross NPAs rise by 20.8%

Bankers estimate that NPAs had come down marginally in the first quarter of FY2010 following the restrucuring of stressed loans by banks and slow credit offtake. State Bank of India reported a marginal decline of Rs 200 crore of NPAs to Rs 15,300 crroe in the first quarter. “After the direct impact of the global financial crisis through MTM (market-to-market) losses was assessed to be insignificant for Indian banks,the focus shifted to the possible asset quality concerns arising from weakening growth prospects as certain sectors in the economy clearly came under the influence of falling external demand due to the global recession and subsequent deceleration in domestic private demand,” the RBI said in its latest Annual Report.

Experts have forecast that the quality of Indian banks’ assets is likely to deteriorate sharply over the next two years. As per the projections made by rating firm Crisil,in absolute terms,this will mean more than a tripling of NPAs to Rs 190,000 crore by March 2011 from Rs 56,400 crore in March 2008. “The rise in NPAs will be driven by the slowdown in the economy,and by the aging of loans made in recent years as the banking sector advances have grown roughly four-fold over the past seven years,to an estimated Rs 27,70,000 crore,” it said.

However,banks are strongly capitalised,cushioning the impact of higher NPAs. The capital coverage for NPAs has increased sharply over the past ten years. The ratio of net worth to net NPAs was over 12 times now as against 2.2 times in 1998. Higher NPAs,however,are expected to lead to considerable pressure on the banking sector’s profitability. Banks are expected to face a cumulative additional provisioning requirement of Rs 77,000 crore by March 2011,which works out to about Rs 25,000 crore per annum. This is almost 60 per cent of the industry’s profit after tax of Rs 42,700 crore in 2007-08.