Thursday, October 11, 2012

NPA of Banks May Cross 10 Percent of Advances

As NPAs rise, stress on bank assets to stay for 12 months
NPA percentage in loans may touch 10% by March 2013, up from 5% in March 2011
Neelasri Barman / Mumbai Oct 12, 2012, 00:03 ISTThe non-performing assets (NPAs) of banks are set to rise. According to a report released by Standard & Poor’s (S&P) yesterday, the percentage of NPAs in total loans is likely to touch 10 per cent by March 2013, a huge jump from five per cent in March 2011.

“We expect NPAs for the banking industry to exceed Rs 5.8 lakh crore by March 31,” said S&P. Due to slow economic growth, banks are yet to see recovery on their assets quality. According to bankers, the NPA cycle will peak due to factors such as drop in the productivity of Indian companies, larger proportion of long-term loans, exposure to sectors which are cyclical in nature and aggressive lending to the agriculture sector.

“Economy has not improved and investments are not picking up. Also, interest rates have not come down to expected levels. Due to these factors, there will not be a significant drop in the current NPA levels. The stress on assets will continue for some more time to come,” said a senior official of a large public sector bank.

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The stress on assets is expected to continue at least for the next 12 months. “The economy has bottomed out and NPAs will peak out in the next 12-18 months,” said a banker with a private sector bank. He pointed out that the economy has slowed and borrowers are not able to generate enough cash flows to repay the loans.

According to a Fitch Ratings report released on Monday, Indian banks will face sustained asset quality weakness over the next few quarters, although most banks have a reasonable buffer to withstand increased stress. Fitch expects the banking system’s gross NPA ratio to reach 4.2 per cent by March 2013, up from its earlier estimate of 3.75 per cent.

Emkay Global Financial Services expects gross NPAs growth to average around 40 per cent in the next two years, compared to the 30 per cent seen during FY09-FY12. “Effectively, we do not rule out gross NPA ratio rising from the 3.1 per cent in FY12 to 4-6.5 per cent in the next 12-24 months,” Dhananjay Sinha and Kashyap Jhaveri of Emkay Global Financial Services said in a report last month.

According to Sinha and Jhaveri, sustenance of high commodity prices, further weakening in fiscal conditions and extension of regulatory concession will stretch the NPA cycle, while tighter regulatory framework, correction in global commodity prices and aggressive fiscal consolidation will shorten the cycle.

However, the impact of economic slowdown is not witnessed in consumer loans, due to which even banks are in the process of growing their retail portfolios. “Banks’ consumer loans continue to perform well because a slowdown in economic growth hasn’t lowered India’s employment rate yet. Wages are also still rising, although inflation remains high,” said S&P.

Data released by the Reserve Bank of India (RBI) earlier this month showed that NPAs in the banking system were the highest in the past five years. Net NPAs rose sharply to 1.28 per cent in 2011-12 from 0.97 per cent a year ago.
However, there are a few bankers who are of the view that the incremental NPAs will be lower. “I am not saying that NPAs will come down. But the incremental NPA formation in the quarters going forward will be lesser than the June quarter for our bank,” said RK Bansal, executive director, IDBI Bank.

Read following articles written long ago . Link is given below


Rising NPA in Public Sector Banks

Asset quality in public sector banks have been going from bad to worse for last several years, and it is not a new phenomenon. Unfortunately or fortunately management of all banks have been manipulating the figures year after year in close nexus with team of auditors and officials of Reserve Bank of India and that of Banking Division in Ministry of Finance to conceal bad assets. They have put pressure on field official in branches and taught not to improve the quality and take strong initiative to recover the money from bad borrowers but taught only various tactics to conceal bad assets to reduce provisioning towards bad assets as per RBI guidelines.

Million dollar questions is “Who will bell the cat when even officials in RBI and MOF are equally weak and guilty”. System is not corrupt but corruption has become the system in banks. Not only banks but all other government departments including judiciary are also victim of same disease. It is therefore not surprising that public demand led by Anna for strong Lokpal Bill is gaining momentum month after month, day after day and none can stop this.Government can torture Anna, Ramdeo and their followers but cannot stop public revolt without punishing corrupt officials and corrupt politicians.


Bleeding Bank

In the quarter ended June 2010 Indian Bank posted unexpected spurt in NPA, in the quarter September 2010 banks like U Co bank ,vijaya bank Union bank etc has exhibited unparallel growth in NPA and in coming quarter many more banks will follow the way to register addition of maximum bad assets in NPA portfolio to include their bank in the list of best performing banks. Government in USA realized the guilt after much damage and Obama openly admitted that banking culture in USA was not as good as it was portrayed by financial experts. Similarly Indian government will also realize after losing lacs of crores in NPA and when most of the banks will face survival crisis. Already government of India has infused lacs of crores as capital in PSU banks to keep them healthy during last one decade

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