Banking regulator insists on tighter rules to classify NPA; bad debts swell in FY13
Stricter enforcement of bad loan regulations in Singapore is proving to be a headache for Indian banks in the country.
The International business of leading Indian banks was affected in FY13 as the regulatory environment in Singapore became tougher. According to bankers, the Singapore banking regulator is now insisting that tighter rules be used to classify loans as non-performing assets (NPA), leading to a rise in the proportion on NPAs on the books of Indian banks present in Singapore.
?These norms were always there, but the Singapore regulator has only recently started pushing for stricter implementation,? said a senior official at a public sector bank.
The regulation, which bankers refer to as ?defined weakness?, requires banks to classify a loan as a non-performing asset (NPA) if the borrower were to delay payment by a few days for three consecutive months. In other cases, if the borrower is a healthy unit of a larger parent group, which is not performing well, banks will be required to classify the unit as an NPA as well, bankers said.
?If out of four banks, one or two classify a borrower as an NPA, then the remaining ones are also questioned as to why the borrower has not been classified as a bad loan yet,? said an executive director at a large public sector bank, on conditions of anonymity.
Classifying a loan as NPA would require Indian banks to provide more for the account, leading to lower profit. ?Other foreign regulators are not harping on it, the Singapore regulator is,? the aforementioned director said.
According to the regulatory requirement in Singapore, banks are required to maintain impairment provisions of not less that 10%, 50% and 100% for loans which are classified as ?substandard, doubtful and loss?, respectively.
Banks such as State Bank of India (SBI), Bank of Baroda (BoB), Bank of India (BoI) and ICICI Bank, who have businesses in Singapore, are the ones affected by this. While banks don?t reveal the exact geographical break-up of their international advances, between 5-10% of the international lending for these banks could come from Singapore operations. Among the banks, SBI has the largest international exposure at R1.69 lakh crore while Bank of Baroda has an international book of R1.03 lakh crore. ICICI?s international exposure stands at R73,420 crore and that of Bank of India at R88,932 crore.
Tighter regulations and weak economic conditions across most geographies has meant that most banks are seeing rising international NPAs and falling margins.
Bank of Baroda was worst hit with international NPAs going up nearly 250% to R1,425 crore and net interest margins falling to 1.49% from 1.68% in March 2012. Bank of India saw its overseas gross NPAs doubling to R1,613 crore in FY13 and overseas NIM fell by 45 bps to 1.06%. SBI?s international gross NPAs rose 11% to R2,811.5 crore and overseas NIM fell 17 basis points (bps) over the year to 1.5% as on March 31.
While banks say they are taking proactive measures to avoid any such surprises in the future, they fear that regulatory uncertainty is something the industry has to deal with when it is doing business abroad.