NPA additions see sharp fall in Q4

While peak is behind restructured loans remain bugbear

After 19 quarters, banks recorded a sharp drop in incremental gross non-performing assets (NPAs) during the quarter ended March. Together, 37 banks, including State Bank of India, added just Rs 519 crore of bad loans in the quarter.

The last time NPA accretion of banks was below this level was in the quarter ended June 2008 (Rs 62 crore). At that time, gross NPAs of these banks stood at about Rs 50,310 crore. At the end of March this year, these stood at Rs 1,74,862 crore, according to Capitaline data. In the April-December period last year, banks witnessed a deluge of bad loans---in each of the three quarters, slippages stood at about Rs 10,000 crore.

Admitting to substantial clean-up in FY12 and FY13, bankers pointed out that risks of slippages, especially from restructured accounts, remain high, due to low prospects of an economic recovery and the uncertain business climate.

The fall in incremental NPAs in the quarter ended March was due to technical write-off and upgrades of corporate loans referred to the debt restructuring cell. Vaibhav Agrawal, vice-president (research) at Angel Broking, said banks booked write-offs to gain tax benefits; recoveries and upgrades saw improvement. The outlook for further recoveries is conducive; typically, recoveries are higher in the October-March period.

Though there is a risk of some restructured loans turning bad, the scale might be lower than that of standard assets turning NPAs across sectors. SBI Managing Director and Chief Financial Officer Diwakar Gupta said slippages were declining and though the quarter ended March saw an improvement, risks remained.

A senior executive with Delhi-based Industrial Finance Corporation of India said, “One would indeed like such a situation (low accretion of NPAs) to prevail.

However, it is an aberration. There is no visibility of a turnaround in the industrial cycle and economic activity this year.” The economy is estimated to have grown five per cent in 2012-13. The Reserve Bank of India estimates growth in 2013-14 at 5.7 per cent.

Bankers said this financial year, corporate credit stress would continue to be a concern for banks. In a base-case scenario, the stress in FY14 is expected to be at levels comparable to those in FY13. However, in a stress-case scenario, the levels could be significantly higher, according to Indian Rating & Research. Corporate credit stress is the Indian banking system’s gross NPAs, as well as its restructured loans. The stressed asset portfolio of the banking sector accounts for about 10 per cent of its total loan book. It is likely to be driven by 22 companies (in the BSE 500), with  debt (including guarantees) of about Rs 1,26,700 crore.

The outlook provides early warnings, in terms of corporate stress levels. About 30 per cent of industrial loans in the Indian banking sector are to sectors that have a ‘negative’ or a ‘stable-to-negative’ outlook.

In 2012, the proportion of industrial loans in sectors with a negative outlook rose to 28 per cent of outstanding credit (in 2011, it stood at six per cent).

Deep Mukherjee, director (corporate), Indian Rating & Research, said gross NPAs might stand at 3.5-3.7 per cent by March 2014---the level seen in December 2012. In FY12, gross NPAs rose to 2.8 per cent from 2.3 per cent in FY11.