Banks’ bad loans rise 54% in FY12 Public Sector Banks Show Sharper Increase In NPAs Than Private Ones

Mumbai:Reflecting the stress in India Inc, net non-performing assets (NPAs) of banks at the aggregate level rose by 53.5% during the quarter ended March 2012, from about Rs 39,200 crore at the end of March 2011 to slightly over Rs 60,100 crore at the end of March 2012. Of the 28 top banks which have announced their results, the rise in net NPAs during the last quarter over the previous quarter was 3.5%, an analysis by Angel Broking showed. 

    One of the main reasons for this sharp jump in NPAs is the loans due to state electricity boards and also Air India. On the sectoral front, metals, textiles and infrastructure sectors were among the major ones to contribute to this slide, banking analysts said. A recent report by PwC India pointed out that while these sectors are under pressure, "banks are also wary of lending to other troubled sectors like aviation, telecom and power, to which they already have sizeable exposure." 

    The sharp rise in NPAs in the banking system, although was expected, has taken a toll on the stock prices of most of these banks with the BSE's banking index now down 11.2% on the year and 11.4% on the month. Among the top banks, SBI is down 16.6% on the year to Rs 1,942 now, and ICICI Bank has lost 22% to Rs 805, but HDFC Bank is up 10.2% to Rs 500 now. 

    Acloser look at the results also throw up some perceptible trends within the banking sector, analysts said. "First of all, gross NPAs of PSU banks have increased to 3.02% of loans by the end of March 2012, from 2.25% a year ago. Similarly, net NPAs have gone up from 1.1% to 1.5% during the same period, indicating that the banks have not been able to provide fully for the fresh NPAs from their operating profits," said Vaibhav Agrawal, VP-research, Angel Broking. 

    The rate of increase in provisioning for bad loans have also not been on a par with the rate of rise in NPAs, leading to a situation where 14 of the 22 PSU banks have provisioning ratio of less than 70%, the minimum rate set by the RBI. 

    Another interesting trend seen among banks is that while PSU banks have seen their loans go bad at a faster clip than their private sector peers, the latter have been steadily improving their asset quality over the past two years. "This is remarkable. Right since the Lehman crisis, private banks have stopped aggressively chasing loans, significantly tightened up their asset appraisal systems and exited or de-focused from risky segments such as unsecured personal loans," Agrawal said. 

    The good news, according to analysts, is that going forward NPA levels are expected to come down. This is because a large number of loan accounts have turned bad because of technical reasons, which is NPA recognition by the core banking solutions, and going by previous experience a substantial chunk of these loans will be recovered soon.