Friday, October 05, 2012

NPA In Banks Rising AT Alarming Rate

Overdue NPA provisions to hit banks hard in Q2
Many banks face erosion of entire quarterly profit as the Reserve Bank of India wants immediate cover for last year?s bad loans
Manojit Saha & Abhijit Lele / Mumbai Oct 04, 2012, 00:44 IST

Several large public sector banks may see their profits in the quarter ended September being eroded, with the Reserve Bank of India (RBI) asking banks to provide for last financial year’s bad loans in that quarter. During the annual inspection of banks’ books, RBI had found many banks had under-provided for bad loans in the last financial year.
According to banking sources, some banks may record Rs 500-600 crore of additional provisioning. 

In the quarter ended June, large public sector banks had reported net profits of Rs 500-Rs 1,250 crore. With a profit of Rs 3,752 crore, State Bank of India (SBI) was the only exception. The impact of the RBI move on SBI would be limited, as the bank has already made stringent provisioning. A senior SBI official said the bank, as well as its associate banks, was scheduled to make overdue provisions in the second quarter. “But the gap between what is provided and what RBI has pointed out is small,” the official added.

Though RBI carries out financial inspection every year, the process has been expedited from this year. Earlier, these inspections were carried out with a lag of 12-18 months. However, to ensure banks take corrective measures immediately, the banking regulator has now decided to complete the report of the previous year in the current year.
 
MOOLAH METER
Net profit in FY12-13 Q1
 Rs crore
SBI3,751.56
PNB1,245.67
Bank of Baroda1,138.86
Canara Bank775.24
Bank of India887.45
Union Bank511.59
Source: Capitaline
Compiled by BS Research Bureau

According to RBI data, non-performing assets (NPAs) have hit public sector banks the most, as these banks carried out the most debt recasts. Net NPAs of public sector banks rose from 1.09 per cent of net advances in 2010-11 to 1.53 per cent in 2011-12. For private banks, the ratio fell from 0.56 per cent to 0.46 per cent. For foreign banks, the it fell to 0.61 per cent in 2011-12.

Latest data shows the ratio of restructured standard advances to gross advances was highest for public sector banks. Till March, this ratio stood at 5.73 per cent for public sector banks, while for private and foreign banks, the ratios were 1.61 per cent and 0.22 per cent, respectively.
http://www.business-standard.com/india/news/overdue-npa-provisions-to-hit-banks-hard-in-q2/488500/

Bank NPAs may cross Rs 2 lakh crore as sickness in SME, farm sectors grows

Collected from Hindu Business Line 6th October 2012
There is growing expectation that loan waiver schemes will be announced in the run up to the elections slated for 2014, said Assocham.
This perception is borne out by the fact that there has been a sudden increase in non-performing assets (NPAs) in agriculture loans, coupled with drought-like situation in several parts of the country, the industry body said.
Assocham observed that while larger companies managed to restructure their borrowings by projecting improved prospects in the long-run, the small and medium enterprises (SMEs) and agriculture sector could not do the same.
The NPA ratios in the SME and agriculture segments witnessed a sharp jump, rising by 1.2-1.3 percentage points in the year ended March 2012, the industry body said in its study on ‘Growing heat of NPAs on the banking sector’.
The stressed assets in the case of public sector banks (PSBs), which were at 9.1 per cent of total advances, are likely to go up with a number of big ticket advances seeking corporate debt restructuring as the economy continues to falter, said the study.

STRESSED ASSETS

As at March-end 2012, PSBs’ gross NPA and standard restructured advances stood at 3.2 per cent and 5.9 per cent respectively.
As 15 per cent of the standard restructured advances are expected to slip into the bad loans category, PSBs’ gross NPAs would exceed 4.1 per cent in FY13.
“Not only is the NPA picture for PSBs looking bad, the restructured asset proportion is also on the rise…..PSBs may continue to be worse off.
“There is enough heat on the banks to put in place better risk mitigation as well as resource mobilisation strategy to calm down the situation,” said Assocham.
The provision coverage ratio (the provisions set aside to minimise the impact on earnings in case the NPAs are completely written-off) would fall from 53 per cent to 44 per cent, increasing the vulnerability of PSBs, according to the study’s assessment.
The growing provisioning and falling bottomline, coupled with the mandated 75 per cent NPA provision coverage, would be a challenge for the banking sector.

PUBLIC VS PRIVATE BANKS

The asset quality of PSBs, according to the study, has sharply lagged behind that of private sector banks, which are experiencing relatively stable asset quality.
“We believe this highlights the need for further strengthening of risk underwriting and monitoring mechanisms at PSBs,” said Assocham.
The industry body said in the case of new and old private sector banks, the NPA ratios moderated in FY2012 due to their lighter portfolio of state electricity utilities, agriculture and SMEs.
Continuing pressures on the economy could see gross non-performing assets of the banking sector cross the Rs 2-lakh crore mark in the financial year ending March 2013, according to Assocham.
Gross NPAs of commercial banks had shot up to Rs 1.37 lakh crore in FY12 from around Rs 57,000 crore in FY2011, the industry body said.
Banks’ existing exposure to severely beaten sectors such as power, aviation, highways, microfinance institutions, ports, and telecom has resulted in high level of stress assets.
Further, the growing sickness in the small and medium enterprises and agriculture sector is showing signs that NPAs are bound to go up.
Pointing to the GDP growth easing to 5.5 per cent in Q1FY13 from 8 per cent in Q1FY12 and the bulging twin deficit — fiscal as well as current account— Assocham said banks are heading into a situation of rising NPAs and falling bottomline.

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