With signs of improvement in the economic climate and support to stressed sectors, the pace of addition to gross non-performing assets (NPAs) has slowed down in the quarter ended June 2009.
The trend of gross NPA formation for BSE-listed banks indicates that the additions peaked in the January-March 2009 quarter at Rs 3,280 crore, 89 per cent up from Rs 1,734 crore in October 2008. The quantum of addition declined to Rs 2,611 crore in April-June 2009.
Outstanding gross NPAs of listed banks stood at Rs 57,139.83 crore at the end of December 2008. They rose to Rs 60,419.25 crore at the end of March 2009 and Rs 63,030.05 crore at the end of June 2009.
| Trend in outstanding gross NPAs in select banks (Rs crore) | ||||
| Bank | Sept '08 | Dec '08 | Mar '09 | June '09 |
| SBI | 12,552.30 | 13,314.40 | 15,588.60 | 15,319.00 |
| ICICI Bank | 9,501.50 | 8,988.10 | 9,469.30 | 9,416.30 |
| Axis Bank | 710.20 | 787.90 | 897.80 | 915.30 |
| Union Bank | 1,674.70 | 1,584.00 | 1,923.30 | 1,874.00 |
| HDFC Bank | 1,675.90 | 1,911.40 | 1,988.10 | 2,163.40 |
| Source: Banks | ||||
Bank of India Chief Financial Officer V K R Agarwal said the feedback from customers indicated that compared to previous quarters, especially the third and fourth quarters of 2008-09, there was some improvement in order books, payments and financials, changing the working environment for better. There was an improvement in repayment behaviour and the extent of slippage came down in April-June 2009 and this trend would continue in the second quarter, he added.
Bankers said restructuring of loans under the Reserve Bank of India’s special treatment – like giving more time for loan repayments helped many businesses, especially small and medium enterprises (SMEs).
SMEs are more vulnerable to the economic downturn. In December 2008, RBI, as part of its move to support viable units facing cash flow problems, had allowed banks to restructure loans without lowering the status of the account. As a result, the restructured assets were not shown as NPAs. This helped banks to keep the NPA book from growing.
This (restructuring) would potentially reduce the pace of addition to outstanding bad loans in coming quarters. “While this (restructuring) has saved the day for most, some run the risk of slipping into becoming NPAs due to continued stress faced by the sector,” said a senior SBI official. The sectors to watch out for include textile and auto parts, where units have been hit hard by demand slump and delayed payments.
While any decline in the pace of Gross NPA addition was definitely a music to the ears of bankers, one head of a small public sector bank cautioned that the review of the first quarter was not extensive compared to the fourth quarter when banks announced audited results.
“There is reluctance at the branch level to account for NPAs promptly. So there could be some element of under reporting of bad loans at the end of the first quarter,” he added.
Credit rating agency Crisil has estimated that the gross NPAs might increase to around 5 per cent by 2011, and in absolute terms, it was expected to rise to nearly three times of the March 2008 level. In March 2008, gross NPAs were about 2.3 per cent at Rs 55,000 crore.
The rating agency expects this figure to rise to Rs 1,90,000 crore in the next two years. It further said that most of the NPAs would come from corporate sectors, including SMEs.
The main reasons behind the rise in NPAs would be inadequate demand, lack of funding, lengthy working capital process and a significant movement in forex rates.
