Whats the real level of non-performing assets (NPAs) in the Indian banking system? NPAs,or loans defaulted by borrowers for a period of 90 days,could be more than double of what has been already announced by the banks as they have found a way out to repackage the problematic loan accounts and brush them under the carpet.
The government and the Reserve Bank of India had announced that total NPAs work out to Rs 1,23,462 crore,or 3.48 per cent of the total advances,as of June 2012. This could be just the tip of the iceberg. Estimates are that loans of Rs 1,60,000 crore have already been restructured in 2011-12 and in the first quarter of 2012-13. Herein lies the catch. If bankers are to be believed,loans restructured by banks were potential non-performing assets,and if these loans were not restructured they could have been classified as NPAs. Bankers call this process evergreening of loan accounts,which is nothing but understating of NPAs. Taken together (NPAs already announced and restructured loans),the real NPA could be anywhere near Rs 3,00,000 crore,or 60 per cent of Indias fiscal deficit of Rs 5,00,000 crore or 7 per cent of total bank advances. A sizeable chunk of the restructured loans belongs to big corporate houses,which stand to gain by concealing the negative impact of their overleveraged positions and financial profligacies. These big corporate houses rush to the CDR (corporate debt restructuring) cell of banks when their loans are about to be classified as NPAs. Once a loan is admitted into the CDR cell,the list of sops includes a moratorium on repayment of principal and cuts in interest rates,along with fresh loans conversion of existing loans into equity.
The problem could intensify. Rating agencies estimate that more loans worth Rs 1,65,000 crore are likely to seek restructuring in the next fiscal. This effectively means problematic loans can hit Rs 500,000 crore if the economy doesnt pick up in the coming months. This leads to a big question: Did banks conduct a proper appraisal and due diligence before extending loans to big corporates?george.mathew@expressindia.com
