Asset quality of foreign & new pvt banks deteriorates

Written by fe Bureaus | Mumbai | Updated: Aug 29 2009, 04:08am hrs
Non-performing assets (NPAs) of foreign and private sector banks has significantly risen after September 2008, according to the Reserve Bank of Indias (RBI) annual report for 2008-09. This reflects deterioration in the asset quality of these bank groups amidst the global financial meltdown.

Gross NPA for foreign banks rose from 1.9% during the fist quarter of the financial year 2008-09 to 4.2% in the fourth quarter. At the same time, they have also witnessed a steep rise in the net NPA ratio from 0.8 to 1.7% during the same period.

Gross NPA for new private-sector banks have also shown a steep rise from 2.9 to 3.6% in 2008-09. Net NPAs have also risen from 1.4 to 1.6%, during the same period.

Since, in absolute terms, both gross and net NPAs increased during 2008-09, despite extension of certain relaxations permitted to banks to restructure certain advances, banks need to exercise better risk management and vigil to avoid future slippage in asset quality," the RBI said in its report.

Of all the scheduled commercial banks (SCBs), the report noted that the net NPAs of nine banks were in excess of 2% of net advances in 2008-09, and that out of the 53 scheduled urban co-operative banks (UCBs), net NPA ratios of 44 were 5% or less.

Asset quality of scheduled UCBs continued to improve during the year," the RBI noted.

Interestingly, public-sector banks witnessed a drop in their gross NPAs from 2.3% at the end of 2007-08 to 2.1% in 2008-09. Net NPAs also slid marginally from 1.1 to 1% during the same period.

Talking about earnings and profitability for banks, the report showed that while the cost of deposits and cost of funds for all bank groups increased in 2008-09, return on advances and return on funds also registered an increase.

In terms of measures of profitability, the performance of SCBs was not affected by the economic slowdown as the return on assets of SCBs was higher during 2008-09, than 2007-08, the report said.

The non-interest income of SCBs increased by nearly 25%.The increase in income more than offset the increase in expenditure is such that profits before provisions and taxes, as a percentage to total assets, also registered an increase during the year. Out of a total of 79 banks, 55 registered an increase in earnings before provisions and taxes while 37 recorded an increase in return on assets during the year. At the same time, the capital adequacy ratio (CRAR) of SCBs continued to be well above the prescribed minimum level of 9%. In fact, the core (Tier-I) CRAR of SCBs itself was 9% at the end of March 2009, almost the same as at end of March 2008, indicating a high proportion of better quality capital in the CRAR for the Indian banking system, the report said.