Mounting NPAs lead to 54 per cent rise in write-offs in fiscal 2001

Our Markets Bureau

In an effort to clean up their balance sheets, most public sector banks (PSBs) have increased the amount of write-offs during the fiscal 2001. Out of the 27 PSBs, 19 including State Bank of India (SBI) and five of its associates, have increased the amount of write-off by Rs 1,980.73 crore during the period.

According to finance ministry figures, the write-off of these 19 banks was Rs 4,387.62 crore in 2000-01 compared with Rs 2,406.87 crore in the previous fiscal.

However, eight PSBs have reduced this amount by Rs 222.91 crore, from Rs 836.61 crore to Rs 613.7 crore.

The higher write-offs were required as there was a continuous deterioration in these banks’ asset quality. The 27 PSBs’ gross non-performing assets (NPAs) have increased by Rs 1,479 crore during the year ended March 31, 2001. The amount of bad debts written off by the 27 public sector banks has increased by an average 54 per cent in the year ended March 2001 as their cumulative NPAs touched a high of Rs 54,773 crore during the year.

However, there has been decline in the NPAs of PSBs as a percentage of gross advances from 14 per cent in fiscal 2000 to 12.4 per cent in fiscal 2001.

Thanks to the huge NPAs and their voluntary retirement scheme (VRS), the bottomlines of these banks have come under pressure. The PSBs had to shell out Rs 3,062.6 crore on account of VRS during the year. The 13 PSBs have reported a fall in net profits in 2000-01.
The net profit of all the PSBs has decreased by Rs 799.21 crore, from Rs 5,116.18 crore to Rs 4,316.97 crore.

These banks will continue to feel the pressure on their bottomlines as the VRS cost of Rs 7,200.34 crore would be spread over the next four years. The PSBs, except for SBI and Corporation Bank, have been poorly discounted on the stock markets for the past couple of years.

Some of them have plans to tap the primary market, but have been deferring their issues for fear of poor investor response. The PSBs have also been hit by narrowing spreads, poor credit offtake and slackening economic growth. These banks are also feeling the heat of competition from their private sector peers as the latter are aggressive on the fee-based activity front.