Listed banks' bad debt rises by Rs 4,000 cr

Gross non-performing assets up 23% in 12 months.

The stress from economic slowdown continues to weigh on the books of banks as was evident from an increase in their gross non-performing assets (NPAs) during the quarter ended September 2009.

In the 12 months to September 2009, the gross NPA of the 39 listed banks went up by 23.41 per cent, or by Rs 12,800 crore, to Rs 67,192 crore. It was Rs 54,402 crore at the end of September 2008.

On a sequential basis, the increase in gross NPAs was about Rs 3,985 crore during July-September 2009. During April-June, it rose by Rs 2,620 crore.

Bankers said the accounts that turned sticky due to the failure to pay on time reflected the adverse business climate. Also, in some cases, restructuring was not done in a prudent manner. “Many banks simply focused on restructuring large accounts and forgot about the smaller ones that added up to a significant amount,” said a consultant with a leading firm.

“The addition to outstanding NPAs is quite small when considered for the entire industry. For a realistic estimate of bad loans, you have to take into account the fact that some restructured assets may slip (default on payments). That NPA addition will be more significant,” a senior State Bank of India (SBI) executive said.

As the gravity of the financial meltdown became visible in September 2008, the Reserve Bank of India (RBI) had allowed banks to go for a second restructuring for many borrowers who were grappling with temporary cash-flow problems. Despite restructuring, as a one-time measure, banks were permitted to classify the accounts as standard assets.

As a result of RBI measures, gross NPAs as a proportion of advances remained unchanged at 2.3 per cent at end-March 2009.

RBI classifies NPAs into sub-standard, doubtful and loss categories. While the share of NPAs in ‘doubtful’ and ‘loss’ category remained more or less static, the share of ‘sub-standard’ category witnessed some variations (read increase) till the end of March 2009. A sub-standard asset is one which has remained NPA for a period of up to 12 months.

Some bankers, however, played down the addition to bad loans. “We have to see the rise in gross NPA in the context of the economic slowdown. Companies and small enterprises are bound to face stress. But things have not gone as bad as was thought initially. In this sense, fears (about huge additions) have been allayed,” Union Bank of India Chairman and Managing Director MV Nair said.

Asked about the remaining part of the financial year, State Bank of India’s (SBI’s) Chief Financial Officer RS Ranjan said, “The general uptake in the economy will make a difference. We expect that many units will get over cash-flow problems and see improvement in financial health to make payments.”

SBI saw a 46.68 per cent rise in gross NPA to Rs 17,375.76 crore at the end of September 2009 from Rs 11,846.19 crore a year ago. Bank of India saw the maximum increase with gross NPA more than doubling to Rs 3,919 crore at the end of September 2009 from Rs 1,978 crore a year ago.

According to rating agency Crisil, the rise in NPAs will be driven by delinquency in corporate loans and the problem could increase in the months ahead. It has estimated that by March 2011, gross NPAs would increase to around 5 per cent of bank advances from 2.3 per cent at the end of March 2008. In absolute terms, this would mean tripling of NPAs to Rs 190,000 crore.

Bankers said that they would go by the maxim “caution to be better part of valour”. Nair who also heads Indian Banks’ Association, the industry lobby, added that the remaining two quarters of 2009-10 were critical when the real impact of the slowdown would be seen.