Asset quality: Is the worst over for PSBs?

NPAs, debt recast fall in March quarter

Public sector banks, reeling under asset quality pressure for the past couple of years, reported lower non-performing asset (NPA) ratio in the three months ended March, according to the Reserve Bank of India’s (RBI) Financial Stability report.

Both gross and net non-performing ratio (to net advances) of the banks fell at the end of the March quarter, compared to end-September, the report said.

Gross NPA for all banks improved to 3.4 per cent at end-March from 3.6 per cent at end-September, while net NPA fell to 1.4 per cent from 1.6 per cent. “This decline in NPA is attributed to lower slippage, improved recovery  and higher write-off during the quarter,” said RBI. In addition, the proportion of standard loans restructured (of total loans) also registered a marginal fall to 5.7 per cent in March, compared to 5.9 per cent in September.

Public sector banks continue to have higher NPAs and debt recast, compared with private and foreign lenders. Public sector banks’ gross NPA was at 3.8 per cent, while loan recast ratio was 5.9 per cent. State-run banks, however, have seen a decline in the quarterly slippage ratio to 0.5 per cent in March, compared to 0.8 per cent in September.

“All banks groups, except new private sector banks, recorded higher write-off during the quarter ended March as compared to September,” said RBI. The banking regulator added the change in debt recast norms, which prescribe higher standard asset provisioning requirement, will put pressure on NPA unless banks take preventive measures. RBI also cautioned banks against misusing regulatory leeway for evergreen loans (short-term line of credit that is routinely renewed, leaving the principal remaining outstanding for the long term).