NPAs impact seen on PSB bottomlines

RBI ANNUAL POLICY STATEMENT, 2004-05

The new NPA provisioning norm announced in the credit policy may hit public sector bank (PSB) bottomlines hard.

"The norm will require higher provisioning of assets that have turned non performing in 2001 or before. The present norm stipulates a 50 per cent provisioning for security based assets that are older than three years "" the new norm will therefor require provisioning which would be higher than 50 per cent," said the executive director of public sector bank.

A senior banker, in charge of asset recovery in another PSB also said that bulk of the NPA in the public sector banks were older than three years and as such they would require higher provisioning which would mean that profitability of banks would take a hit in the 2004-05.

"Despite the fact that many banks have made higher provisioning to bring down their net NPA levels in their balance sheet "" a large portion still have to be provisioned at a higher rate than has been," explained another public sector banker.

"ICICI however was not likely to take a large hit because 30 per cent of their NPAs were from Dabhol Power Company, which was formed in the last couple of year and thus not falling under the purview of the new norm. We have also made around 70 per cent provisioning of the rest of the NPA which should adequately cover our position," explained Kalpana Morparia, deputy managing director, ICICI Bank.