Non Performing Assets in PSBs: Issues

Non Performing Assets in PSBs: Issues

Question : Out of 17 public sector banks for which the results for 2014-15 have been announced, 6 have gross NPA levels at level of more than six per cent. Discuss the problem of NPAs in PSBs in India.

• Rise in NPA in PSBs has been attributed to impact of global recession along with internal factors such as economic slowdown

• Corporate performance has negatively impacted credit quality

• Asset quality of PSBs has fallen as corporate loans form a larger share of credit portfolio of PSBs

• 5 sectors where PSBs have most exposure-infrastructure, textiles, steel, mining and aviation have led to massive rise in NPAs

• NPAs are of two types: gross and net

• Gross NPAs are sum total of loan assets classified as NPAs on balance sheet date as per RBI

• Gross NPAs reflect quality of loans made by banks

• Bad loans are the reason for NPAs

• 6 banks have gross NPA levels of more than 6% namely
- United Bank of India,
- Indian Overseas Bank,
- UCO Bank,
- Punjab National Bank,
- Bank of Maharashtra and
- Central Bank of India. Allahabad Bank,
- Andhra Bank,
- Oriental Bank of Commerce,
- Dena Bank

• Better governance is needed to stave off NPAs

• In the current year, gross NPAs of Indian banks are edged by 20 basis points to 4.5% of advanced or raise by INR 600 billion to 4 trillion

• Bad loans are increasing due to withdrawal of regulatory forbearance on restructuring and high slippages from restructured assets

Facts and Stats

• In private sector banking, gross NPA ratio was 3.78 for ICICI in 2014-2015 as against 3.03 before that; in comparison, SBI has gross NPA of 3.37 percent and 4.35% the year before that.

• So PSBs need not have NPAs if they operate well

• In specific cases, banks have reported improvement in asset quality on a sequential basis in the last two quarters of the fiscal

• CRISIL estimates that private sector banks will grow at twice the pace of capital crunched PSBs in the next 4 years