Three years into the National Democratic Alliance government’s rule and it wouldn’t be an exaggeration to say that banks are on the verge of a crisis due to their high non-performing assets (NPAs).
The problem is more acute in public sector banks as nine out of 10 most stressed banks in the sector are public sector. Investors are fast dumping shares of these banks which is plaguing the Rs 95 trillion Indian banking sector.
Indian banks have witnessed a sharp increase in NPAs since late 2015. NPAs have now shot up by 135 per cent from Rs 261,843 crore in the last two years. It constitutes 11 per cent of the gross advances of public sector banks as per the Reserve Bank of India (RBI) statistics for 2016.
While according to the data compiled by Care ratings, total NPAs for public and private banks were Rs 697,409 crore as on December 2016. A recently released report by Care Ratings, state that gross NPAs of nine private banks when combined have increased from 1.93 per cent of total advances in March 2015 to 3.91 per cent in March 2017.
NPAs are those assets of a bank which are incapable of getting returns. In other words, a loan or lease that is not paying its principal and interest payments is an NPA.
The corporate sector have been finding it difficult to repay loans due to slow down of economic growth and high rate of interests which is making the scenario worse. The delay in environmental related permits affecting iron, power and steel sector, ban in mining projects, raw material price volatility have impacted the ability of industries to repay their loans. Poor recovery and use of coercive techniques by banks adds to the misery.
However, the State Bank of India managed to restrict NPAs to Rs 1.08 trillion for the December quarter 2016 compared to Rs 1.06 trillion for the September quarter of 2016. Punjab National Bank and Bank of Baroda also reported a decline in NPA.
According to RBI’s Financial Stability Report, “Under baseline scenario, the PSU banks’ gross NPA ratio may increase to 12.9 per cent in March 2018 from 11.8 per cent in September 2016, which could increase further under a severe stress scenario.”
The latest report of Care Ratings says, “Quite clearly the problem is acute and tackling NPAs has become a primary objective of the government and RBI. The history of addressing the issue of weak assets is fairly deep in our context, though the success level has been less than satisfactory.”
NPAs in non-corporate sector is less than that in the corporate sector. Hence, banks need to be highly cautious in granting loans to corporate sectors. The credit rating agencies need to be more efficient as it is often noticed that several defaulters were not registered in their credit history and the government must also tighten noose on NPAs.
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