NPAs worth Rs 38,000 cr waiting to be restructured

The current overall low non-performing assets (NPA) scenario in the Indian banking industry is changing. Hit by the economic slowdown, the chunk of assets being restructured in the banking sector is growing rapidly. It will push up NPAs even as the country?s economy is on a recovery path.

DR Dogra, managing director and CEO, Credit Analysis & Research Limited (CARE), has said that the whopping amount of loans that are currently being restructured in the banking industry are a cause of concern. ?As on March 31, 2008, 2.31% of net advances of the Indian banking sector, worth around Rs 58,000 crore, was classified as restructured loans. The Indian banking system has, at present, pending loan restructuring applications worth Rs 38,000 crore, amounting 1.5% of net advances of the sector,? he said in an interview with FE.

Care is one of the prominent rating agencies in India.

The NPA figure of the Indian banking sector is likely to go up in future. By end of fiscal 2011, banks could face major issues related to their restructured assets when they become due for repayment even if the country grows at around 6% in the subsequent years, he cautioned.

Moreover, the Reserve Bank of India?s (RBI) annual report for 2008-09 revealed that there has been a significant rise in the gross and net non-performing assets (NPAs) ratio for foreign and new private sector banks, particularly after September 2008, reflecting deterioration in the asset quality of these banks following the global financial meltdown.

The gross NPA for foreign banks, which normally keep a tight leash on NPA, rose from 1.9% during the first 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.

The gross NPA for new private sector banks have also witnessed a steep rise form 2.9% to 3.6% in 2008-09. Net NPA have also risen from 1.4% to 1.6% during the same period.

“Since, in absolute terms, both gross and net NPA 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, the report noted that the net NPA 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, net NPA ratios of 44 were 5% or less.

Another credit rating agency, Crisil, has also projected that the gross NPA in the Indian banking system will go from 2.3% as on March 2008, to 5% by March 2011. The absolute quantum of NPA will go up by three times from the current level, to Rs 2 lakh crore by the year 2011. Currently, the total credit of the Indian banking system is Rs 27 lakh crore. The biggest increase in NPA accorong to Crisil will happen in most vulnerable sectors like real estate and textiles, as 17% of the total credit growth has gone to these sectors. Around 78% has gone to medium-risk sectors and 5% to low-risk sectors. Corporate NPA will thus increase from 1.6% to 4.1% by 2011.

Retail NPA will go up from 3.2% to 4.7% by 2011. Agri NPA will surge from 3.2% to 6.1%. SSI NPA will grow from 3.1% to 10% by March 2011. The biggest contributor to the NPA in the years to come would thus be the corporate, and not the retail sector.