39 listed banks see their gross NPAs rise over Rs 15,000 crore in the last 12 months.
The improvement in economic fundamentals and industrial recovery is pointing to better days ahead. But that is hardly a relief to bankers who continue to worry over slippages, as 39 listed banks saw their gross non-performing assets (NPAs) rise over Rs 15,000 crore in the last 12 months.
Worst is fairly over and the pace of defaults will only decline. Yet, there is a need to be watchful of slippages in the next one-two quarters from restructured loans, small and medium enterprises (SMEs) and the commercial real estate segment, feel bankers.
| LOOMING TROUBLE Gross NPAs in quarter ended December (Rs Crore) | |||
| 2008 | 2009 | Change | |
| State Bank of India | 12722.67 | 18861.17 | 6138.50 |
| Bank of India | 2212.73 | 4186.64 | 1973.91 |
| IOB | 1718.11 | 3218.27 | 1500.16 |
| IDBI Bank | 1600.58 | 2317.47 | 716.89 |
| Union Bank (I) | 1564.04 | 2092.41 | 528.37 |
| Bank of Maha | 744.25 | 1216.82 | 472.57 |
| Axis Bank | 787.85 | 1173.50 | 385.65 |
| Vijaya Bank | 647.54 | 995.32 | 347.78 |
| Bank of Baroda | 1921.42 | 2260.27 | 338.85 |
| Syndicate Bank | 1762.24 | 2017.69 | 255.45 |
| Source Capitaline Complied by BSRB | |||
Plus, there is another area of concern in the form of agriculture loans, especially to large farmers (cultivating land of more than two hectares) under the debt waiver scheme. These farmers were required to pay up 75 per cent of outstanding by December 2009. The government would pay the balance 25 per cent to banks.
Asset quality continued to be under pressure in the third quarter ended December 2009. The pace of defaults continued to rise. The outstanding NPAs of 39 listed banks rose by Rs 5,244 crore in three months to touch Rs 70,741 crore by end-December 2009. In July-September 2009, fresh NPA addition was about Rs 3,911 crore, up from Rs 2,258 crore in the April-June period.
While the economic growth climate has improved, the slowdown effects linger, making certain sectors vulnerable. The peak additions in bad assets are behind and the pace of incremental addition will decline in coming quarters.
State Bank of India Chairman OP Bhatt said NPAs grew the most in the second quarter (Rs 2,057 crore). The pace moderated in the quarter ended December 2009. The gross NPAs of the largest lender rose by Rs 1,485 crore. The additions will be less in the coming quarters.
Rating agency Crisil said due to extensive restructuring activity as well as a stronger-than-expected recovery in economic growth, the reported NPAs of the banking system were unlikely to rise to the extent that were previously expected.
Bankers do speak of the risk of some restructured loans turning into NPAs in the next few quarters due to unbearable financial burden on companies. The Reserve Bank of India (RBI) in December 2008 had allowed banks, as a one-time measure, to restructure loans given to companies facing temporary cash flow problems due to external adverse circumstances. These loans were to be treated as standard assets in bank books.
According to Crisil, till mid-2009, banks restructured around 4.2 per cent of their advances. Slippages from these cases may put stress on the asset quality of the banking system over the medium term.
For SBI, out of Rs 16,796-crore worth loans restructured under RBI dispensation up to June 2009, Rs 996 crore have slipped into the NPA category up to December 2009, taking the slippages ratio to 5.93 per cent.
Though not irrecoverable, these restructured cases may need another round of support. Such cases will be treated as sub-standard assets under RBI norms. These slippages could be for a short period.
A Bank of India official said that the problems of companies were earlier not addressed in depth. Things (restructuring) were done in a hurry based on inputs of companies and their managements. For such cases, the unaddressed issues will surface in coming quarters, warranting another round of support from banks. Such loans will have to be treated as non-performing loans.
Elaborating on concerns over asset quality emanating from small players in real estate, Rajiv Deoras, head of wholesale banking at Dhanlaxmi Bank, said while the supply of commercial real estate space was huge, there was low demand.
Large players in the realty sector have been able to manage the slowdown in demand and resource crunch. Small players with limited holding power and mounting repayment obligation to banks and suppliers posed higher risk, he added.
One of the public sector banks which suffered the most due to a sharp rise in non-performing assets in the third quarter is Chennai-based Indian Overseas Bank. Bank of India suffered majorly in the second quarter. It saw a gross slippage of Rs 837 crore during the quarter. Its Executive Director YL Madan said real estate, textiles industry and metals accounted for 50 per cent of slippages.
Another category putting strain on bank balance sheets is SMEs. These units have been more vulnerable to economic downturn and continue to show stress. Most have tried to maintain repayment record despite a sharp fall in demand and revenues. But, as adverse patch stretched longer, they are finding it very difficult to make regular payments due to liquidity crunch.
DR Dogra, managing director with rating agency CARE, said, most banks have seen a rise in gross NPAs in the third quarter. Units from the gems and jewellery sector, steel products and auto ancillary have shown stress. The rating downgrades, reflecting deterioration in financial profile of a company, continue to take place.
