NPA crisis to continue for another two-three years: E&Y survey

72% respondents believe NPA crisis is set to worsen

Banks are unlikely to get any respite from bad loans anytime soon, as per an E&Y report. 

As per a survey conducted by E&Y, 72% of the respondents that includes bankers said that the Non Performing Assets (NPA) crisis in the country is set to worsen. 

“The stressed accounts that have been hidden till now would keep the NPA level rising for at least for the next 2-3 years,” said the report quoting bankers.

Around 87% of the respondents said that the rise in NPA/stressed assets numbers is due to diversion of funds to unrelated business or frauds. Whereas another 64% of the respondents said that the reason for rise in NPA was lapses in the initial borrower due diligence and 54% believed that the inefficiencies in the post-disbursement monitoring process has led to a rise in NPA. 

As per the Financial Stability Report published by Reserve Bank of India, the gross NPAs of banks as percentage of gross advances increased to 4.6% from 4.5% between September 2014 and March 2015. In the same period the overall stressed advances increased to 11.1% of the total advances, up from 10.7%.

“The reported numbers are quite high, and there are fresh additions every quarter, leading to further deterioration in asset quality. The portfolio of restructured accounts is adding to the problem at hand, thereby resulting in crisis,” said the E&Y report.

The survey also stated that a majority of bankers believe that the restructuring norms are being wrongly used. About 72% of the respondents said that the borrowers were misusing the NPA norms. 

“Borrowers are taking advantage of the legal process. Even if there are no stressed accounts, they mis-utilise it to their advantage due to weak frameworks. We have not seen a single instance of borrower hiving off his investments for the success of the restructuring scheme. These schemes are often used to soften the pricing term, elongation of repayments, without improving on the basic viability of the business,” said the report quoting bankers.