Banks see bad loans up 9%

June quarter data shows higher slippages by PSBs agri sector, SMEs account for bulk of defaults

Deficient rains and a slump in business growth adversely hit the asset quality of banks in the quarter ended June. The gross non-performing assets (NPAs) of 32 listed banks rose by Rs 8,100 crore to Rs 91,429 crore in the quarter. This list of banks excludes State Bank of India (SBI), which is set to announce its results on August 10.

Bankers and analysts said small and medium enterprises (SMEs) and the agricultural sectors accounted for the most defaults in the quarter.

The majority of bad loans were added to the kitty of public sector banks, while private sector banks saw marginal growth in NPAs, owing to lower exposure to stressed sectors like textiles and steel and stringent risk-management practices.

Bank of Baroda attributed the substantial rise in NPAs to the slowdown in the industrial sector and the weak monsoon this year.

Punjab National Bank’s gross NPAs rose by Rs 1,268 crore to Rs 9,988 crore in the quarter.

Diwakar Gupta, managing director and chief financial officer, State Bank of India, said it was challenging for SMEs to expand their top lines, considering the economic slowdown. Their input costs, however, were rising. SBI’s gross bad loans were Rs 39,676 crore at the end of March, of which the share of SMEs was Rs 11,929 crore (30.1 per cent).

Nagarajan Narasimhan, senior director, CRISIL Ratings, said the capital goods sector’s credit quality had come under pressure, with working capital requirement surging to a five-year high. The pressure is primarily due to the deferment of large capital investment plans since 2011-12. The resultant build-up in inventory and the delay in release of payments by customers had led a tight liquidity scenario.

The outlook for the coming quarters remains grim. The Reserve Bank of India has scaled down its growth estimate for the current financial year from 7.3 per cent to 6.5 per cent and raised its estimate for wholesale inflation from 6.5 per cent to seven per cent.

CRISIL said the weakening credit risk profile of companies in the capital goods sector was a matter of concern, as this segment acted as a lead indicator, signalling increased pressure on other sectors, as well as pressure on the overall economy.

Indian Overseas Bank executive director D Chavali said credit quality might remain under pressure for two quarters, owing to the slowdown and the deficient monsoon. P Sitaram, chief financial officer, IDBI Bank, agreed.

GOING SOUR Top 5 banks that saw maximum slippages in Q1 (Rs  cr)
Bank	Jun '11	Mar '12	Jun '12	Jun '12  over Mar '12
PNB	4,893 (2.0)	8,719 (2.93)	9,988 (3.34)	1,268
Union  Bank	3,745 (2.57)	5,449 (3.01)	6,541 (3.76)	1,091
IDBI  Bank	3,287 (2.10)	4,551 (2.49)	5,495 (3.24)	944
Bank of  India	5,791 (2.69)	5,893 (2.34)	6,751 (2.56)	857
Bank of  Baroda	3,425 (1.46)	4,464 (1.53)	5,319 (1.84)	854
Figures in brackets are gross net performing assets as % of total advances Data Source: Captaline                                Complied by Bs Research Bureau

The repayment capacity would remain under pressure, keeping the risk of slippages high for the next two-three quarters, he said. IDBI Bank saw addition of NPAs worth Rs 944 crore in the three months ended June.