Incremental NPA additions dip sharply in Q4

Its aberration and risk of slippages remain high, warn bankers

After 19 quarters, banks witnessed a sharp drop in the incremental gross non-performing assets during January-March 2013, giving false impression of fading stress on balance sheets. Addition to bad loans of 37 banks including State Bank of India was just Rs 519 crore in January-March 2013.

Bankers admitting to substantial clean up done in FY12 and FY13 are quick to point out that risks of slippages remain high due to low prospects of economic recovery and uncertain business climate.

Last time, such a low level of accretion (Rs 62 crore) to NPAs happened in April-June 2008 period, just before onset of full-blown global financial crisis. The Gross NPAs of these banks were about Rs 50,310 crore in June 2008,. It has shot-up to Rs 1,74,862 crore at end of March 2013, according to Capitaline data. (see table)

The fall is due to the technical write-off and up-gradation after corporate loans being referred for debt restructuring. SBI managing director and chief financial officer Diwakar Gupta said slippages are coming down. There is improvement in the fourth being last quarter of the financial year. However, the risks remain.

Bankers said corporate stress will continue to be a headache for banks in FY14 due to low prospects of recovery and poor visibility on improvement in business climate.

Senior executive with IFCI, Delhi-based state-owned non-banking finance company “one would indeed like such situation (low accretion to NPAs) to prevail. It is an aberration. There is no visibility of turned-around in industrial cycle and economic activity this year.” Reserve Bank of India has estimated 5.7% economic growth for fiscal year 2013-14. The economy is estimated to have grown at about 5% in 2012-13.

The corporate credit stress for FY14 is expected to be at levels comparable to FY13, under its base-case. However, in a stress case scenario, the levels could be significantly higher, according to Indian Rating & Research. The corporate credit stress is reflected by the Indian banking system’s gross non-performing assets (NPA) and restructured loans.

It is likely to be driven by 22 companies (in BSE 500), with outstanding debt (including guarantees) of about Rs 1,26,700 crore.

The specific outlook provide substantial early warnings with respect to corporate stress levels. Around 30% of the industrial loans in Indian banking belong to the sectors which are on a negative or stable-to-negative outlook. The proportion of industrial loans in sectors with a negative outlook shot up in 2012 to 28% of outstanding credit (2011: 6%).

Deep Mukherjee, director corporate, Indian Rating & Research said the gross NPAs may remain at 3.5-3.7% by March 2014, which was the same level at December 2012. Gross NPA rate increased to 2.8% in FY12 (FY11: 2.3%).