The situation is further expected to deteriorate as NPAs are expected to further grow and reach Rs.1,50,000 mark by end of FY14 as situation is worsening every quarter. This is because there is a lag effect on asset quality in relation to the state of the economy.
As the economy goes down the asset quality of banks deteriorates after a period of time. Similarly when the economy looks up the asset quality improves after a gap of time. In addition to this, in second half of FY14, the pressure on NPAs will increase as some of the restructured loans of the previous years will get converted to NPAs, the ASSOCHAM paper was released days after the Reserve Bank raised serious concern over the deteriorating quality of the banks, particularly in regard to the public sector banks.
Gross NPAs as on September 30, 2013 stood at Rs 2,29,007 crore, 27 per cent higher when compared to Rs 1,79,891 crore as of March 31, 2013 for these 40 listed banks, mentioned the ASSOCHAM paper.
One of the reasons for NPAs increasing is the guided lending for banks. To meet the national goals at times, quality of appraisal is relaxed which later creates problems. There are many other causes which are also responsible for accumulation of NPAs, some of them are faulty credit management, lack of professionalism in the work force, unscientific repayment schedule, mis-utilization of loans by user, lack of timely legal solution to cases filed in different courts, political interference at local levels and waiver of loans by government have also been contributing to mounting NPAs in India, added the paper.
Public sector banks are facing more problems than the private sector banks. The NPAs in public sector banks are growing due to external as well as internal factors.
The data of 2012-13 shows that the net non performing assets of Public sector banks have increased sharply in 2012-13 as compared to their private counter parts. According to RBI data net NPA of public sector banks rose to 2.02 per cent during 2012-13 compared to 1.53 per cent in the previous year while net NPAs of private sector banks rose marginally to 0.45 per cent as compared to 0.42 per cent in the previous fiscal year. Most of the loans are from big borrowers, highlights the paper.
Public Sector Banks share a disproportionate burden of the restructured accounts, said Mr D S Rawat ASSOCHAM Secretary General. Restructured accounts have grown at a compound annual growth rate of 47.86 per cent in public sector banks. The corresponding figures for private sector and foreign banks are 8.12 per cent and (25.48) per cent respectively. The ratio of Restructured Standard Advances to Total Gross Advances was highest for Public Sector Banks at 5.73 per cent while the ratio is significantly lower for private and foreign banks at 1.61 per cent and 0.22 per cent respectively.
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An area of great concern is that at some point of time some of the (estimates vary from 25% to more) the restructured assets would slip to NPA. Looking at the sheer volume of restructured assets this is likely to have hugely negative impact on the balance sheets of banks, said Mr Rawat. As it is the slippage to NPAs show no signs of abating. The results of some banks for the quarter ended September 2013 do indicate some containment but it would be too early to conclude that the era of slippages is behind us. This is an area which needs serious consideration as not much focus is being given to this. It is felt that if urgent remedial steps to come out of this situation are not taken by banks right now it would be too late to take any action which would lead to a situation where banks could inch to the era where the NPAs were in double digits, added Mr. Rawat.
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