Tamal Bandyopadhyay & B G Shirsat: No longer a zero-NPA game

In 2003-04, Oriental Bank of Commerce (OBC) created a history of sorts by becoming the first zero-NPA (non-performing assets) bank in India. Today, OBC has a net NPA of 1.29 per cent of its advances. The rise in the net NPA is on account of its merger with Global Trust Bank.

A relatively smaller entity, Global Trust Bank, had a higher NPA and when it was merged with OBC, its stressed assets found their way into the books of OBC and, thus, raised its NPA level.

Had OBC wanted, it could have opted for higher provisioning and continued to remain a zero-NPA bank. However, in that case it would not have been able to show a growth in its net profit in 2004-05. 

Net NPA vs Gross NPA
NET NPAs (%)				GROSS NPAs (%)
Rs crore	2002-03	2003-04	2004-05	2002-03	2003-04	2004-05
Allahabad Bank	7.08	2.37	1.28	13.65	8.66	5.8
Andhra Bank	1.79	0.93	0.28	4.89	4.6	2.46
Bank of Baroda	3.72	2.99	1.45	11.02	10.52	7.3
Bank of India	5.37	4.5	2.77	8.62	7.86	5.48
Bank of Maharashtra	4.82	2.46	2.15	9.55	7.7	7
Canara Bank	3.59	2.89	1.88	5.96	6.33	3.89
Corporation Bank	1.65	1.8	1.12	5.27	5.03	3.41
Dena Bank	11.83	9.4	5.23	17.86	14.82	9.67
Indian Overseas Bank	5.23	2.85	1.27	10.29	7.4	5.28
Oriental Bank of Commerce	1.4	Nil	1.29	7	5.9	9.1
Punjab National Bank	3.86	0.98	0.2	11.59	9.35	5.97
SB of Bikaner & Jaipur	4.13	1.24	1.61	8.15	5.36	3.26
SB of Mysore	5.19	2.96	0.92	10.13	7.76	4.56
SB of Travancore	3.06	1.39	1.81	6.67	5.69	4.28
State Bank of India	4.5	3.48	2.65	9.34	7.75	5.96
Syndicate Bank	4.29	2.58	1.59	8.34	7.33	5.17
UCO Bank	4.36	3.65	2.93	8.2	6.93	4.96
Union Bank of India	4.91	2.87	2.64	8.96	7.59	5.01
Vijaya Bank	2.61	0.91	0.59	NA	NA	NA

Its net profit in 2004-05 went up to Rs 760.81 crore from Rs 686.07 crore in 2003-04. This is despite a huge jump in its NPA provisioning "" from Rs 1,210.91 crore in 2003-04 to Rs 2,196.85 crore.

On account of this higher provisioning, OBC could contain its net NPA at 1.29 per cent despite the rise in gross NPA from 5.90 per cent to 9.10 per cent. In absolute terms, its gross NPA rose from Rs 1,210.91 crore in 2003-04, to Rs 2492.27 crore in 2004-05.

OBC's case, though a special one "" since it was affected by the merger with Global Trust Bank "" is not an isolated one. Almost all listed public sector banks have been able to bring down their net NPAs by virtue of making large doses of provisions.

They have neither been able to arrest fresh slippages nor maintain the quality of assets despite the growth in corporate earnings over the past few years. A loan asset turns sticky when its interest remains unpaid for 90 days.

Of the 19 listed banks (15 nationalised banks, State Bank of India and three of its associate banks), four had less than 1 per cent net NPA as on March 31, 2005.

They are Punjab National Bank (0.20 per cent), Andhra Bank (0.28 per cent), Vijaya Bank (0.59 per cent) and State Bank of Mysore (0.92 per cent). There are nine banks that have less than 2 per cent NPAs and three banks below 5 per cent NPAs.

Only one bank, Dena Bank, has more than 5 per cent NPAs (5.23 per cent).

Indeed, if one tracks the movement of NPAs over the past three years, there has been a significant improvement in the quality of assets of these banks. In 2003-04, OBC was a zero-NPA bank and three other banks "" Andhra Bank, PNB and Vijaya Bank "" had net NPAs of less than 1 per cent.

However, only four banks had less than 2 per cent net NPAs, while eight banks had less than 3 per cent NPAs. At the upper end, two banks had less than 4 per cent net NPA and Dena Bank's net NPA was as much as 9.4 per cent.

In 2002-03, not a single listed bank had less than 1 per cent net NPA. Three banks "" Andhra Bank, OBC and Corporation Bank "" had less than 2 per cent net NPAs and only one bank had less than 3 per cent net NPAs.

Among the rest, four banks had over 3 per cent net NPAs, five banks over 4 per cent, and seven had net NPAs of over 5 per cent.

However, the downward movement of gross NPAs is not that dramatic. In March 2005, only one of these 19 listed public sector banks had less than 3 per cent gross NPAs (Andhra Bank, 2.46 per cent).

At the higher end, Dena Bank leads the pack with gross NPAs of 9.67 per cent, followed by OBC (9.10 per cent), Bank of Baroda (7.3 per cent) and Bank of Maharashtra (7 per cent).

As many as seven banks in this category have their gross NPAs over 5 per cent. They are Punjab National Bank (5.97 per cent), State Bank of India (5.96 per cent), Allahabad Bank (5.80 per cent), Bank of India (5.48 per cent), Indian Overseas Bank (5.28 per cent), Syndicate Bank (5.17 per cent) and Union Bank of India (5.01 per cent).

This is certainly an improvement over the state of affairs in 2002-03. But the decline in gross NPAs of these banks is not as sharp as that of the net NPAs. For instance, Allahabad Bank's gross NPA over the three-year-period (between 2003 and 2005) has dropped from 13.65 to 5.80 per cent.

But in case of net NPA the drop is from 7.08 to 1.28 per cent. Similarly, Andhra Bank has brought down its gross NPA level from 4.89 to 2.46 per cent but the decline in its net NPA has been far more dramatic "" from 1.79 to 0.28 per cent.

Or take the case of Indian Overseas Bank. Its gross NPA dropped from 10.29 to 5.28 per cent but the drop in its net NPA is much sharper "" from 5.23 to 1.27 per cent.

The most striking instance is possibly Punjab National Bank. Its net NPA dropped from 3.86 per cent in 2003, to 0.20 per cent in 2005. However, its gross NPA during this period only halved "" from 11.59 to 5.97 per cent.

In absolute term, the amount of gross NPAs of this set of banks over the past three years shrunk by about 11 per cent "" from Rs 45,086.50 crore in 2003 to Rs 40,196.62 crore in 2005.

In contrast, the net NPA pile was reduced by over 32 per cent "" from Rs 20,324.84 crore in 2003, to Rs 13,738.01crore last year.

The pile of sticky assets, in absolute terms, does not have much relevance since the percentage of NPAs of a particular bank depends on the size of its loan portfolio. If the loan assets are huge, then even a big chunk of NPAs can look relatively small.

However, the fact remains that these banks have been able to reduce their net NPAs by virtue of provisions and not by judicious lending and monitoring of loan accounts.

We have not seen any zero-NPA bank in 2005 because the players could not make large provisions when their bottomline was hit by a sharp drop or even losses in treasury income.

The amount of NPA provisions made by these 19 banks dropped from Rs 24,790.47 crore in 2004, to Rs 24,000.65 crore last year. It may drop further this year.

Over the past three years, the total NPA provisions made by these banks has been far above their collective net profit. While the net profits of this group of banks between 2003 and 2005 were to the tune of Rs 38,021.14 crore, the NPA provisions made by them was 70,208.42 crore.

If they fail to maintain this momentum, the ugly head of the three-legged monster "" NPA "" will resurface again. It can create a few cracks in the financial sector architecture if the banks do not put their house in order.