The gross non-performing assets (GNPAs) ratio of 13 public sector banks (PSBs) rose 143% in the two-year period from March 2015 to march 2017, said CARE Ratings in a research report. According to the report, from March 2016, NPAs at these banks have increased by a total of about Rs 50,000 crore in the next four quarters till March 2017.
“This increase was spread quite evenly across the four quarters – Rs 20,217 crore in Q1, Rs 11,128 crore in Q2, Rs 8,318 crore in Q3 and Rs 10,642 crore in Q4,” the report said.
“Compared with March 2015, growth by March 2017 was 143%. These high NPAs have been a major reason for pressure on profitability as they have been making progressively higher provisions on this count,” the report added.
Earlier, RBI, under the leadership of former governor Raghuram Rajan, initiated an Asset Quality Review (AQR) and asked all banks to complete this AQR process by March 2017. This AQR, which was implemented from Q4 of FY16, forced the banks to report the actual NPAs that were so far hidden in their balance sheets under some technical adjustment or the other.
Now that the deadline issued by RBI has passed, the question that remains is that have the banks reported all of their NPAs in keeping to the central bank’s deadline or will there some spill over into the next quarter? We’ll have to wait and watch.
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“The indication is that there is a mixed picture for PSBs so far, and while at the aggregate level, it appears to have stabilised, the ratio has come down for eight of the 13 banks which could improve going ahead. For the other five banks, another quarter’s performance would be critical for drawing any conclusion on whether or not the worst is over,” the report said.
According to the report, five PSBs, Central Bank of India, Bank of Maharashtra, Dena Bank, Andhra Bank and Punjab & Sindh Bank the NPA continue to at peak levels during March 2017.
The report shows that there has been a continuous increase in the Gross NPA ratio from March 2015 onwards, with a sharp spike of 1.5% witnessed in December 2015, another sharp spike of 2.67% in March 2016 followed by another sharp spike of 1.17% in June 2016. Subsequently, the NPA ratio has almost touched 12% by December 2016 and remained virtually unchanged until March 2017.
“The question posed is whether this is a plateau reached by these banks or whether the number could increase in the coming quarters. Some of these banks have reported that they have managed to lower the volume of NPAs at a faster pace than fresh slippages, which is a positive sign for the system as it does indicate that the worst may be behind us,” the report said.
“Prima facie there is reason to believe that the numbers should not increase subsequently and whatever is recognised would be more on new loans rather than the existing portfolio. This would hold especially for banks which have recorded lower NPA ratios in March 2017 compared with December 2016,” the report concluded.