In what sketches a stable picture for public sector banks (PSBs) in the country, the growth of sticky loans in PSBs are much lower compared to their private sector peers. A study carried out by FE shows that the net non-performing assets (NNPAs) of 13 private banks increased 36.1% in 2008-09, against 17.9% for 25 PSBs included in the study. Level of non-performing assets is a key indicator of a bank?s quality of loans and level of risk.
The gross non-performing assets (GNPAs) of private banks increased 36.5%, against an increase of 11.7% of PSBs. GNPA is the sum of all non-performing assets and it indicates the overall quality of loans made by the bank. On the other hand, NNPAs are the residual non-performing asset after deducting the provisions made by the banks to cover defaults, and these reflect the true burden on banks.
However, these numbers are to be seen in the light of gross and net advances made to get a better picture. And in this light, the average NNPAs to net advances ratio of 25 PSBs decreased from 0.77% in 2007-08 to 0.73% in 2008-09. But for the private banks, the ratio increased from 0.79% to 0.95%. In both the cases, they remained under the 2% level, which is considered to be a danger area by bankers.
Analysts attribute this to various reasons. One of them is aggressive growth in the retail areas by private sector banks. Loan restructuring is also known as one of the factors. On February 4, Reserve Bank of India (RBI), with a view to step up lending by banks, notified that all accounts where a simple receipt of application for proposal for restructuring package is received by a bank by March 31, indicating that restructuring package will be put in place within 120 days, will be treated as standard assets and no provisioning would be required. Such assets would not be treated as ?non-performing?.
According to analysts, the banking sector could well have restructured loans in excess of Rs 50,000 crore. The public sector banks were seen taking a lead in this area with SBI said to have restructured around 50,000 small and medium enterprise loans and Dena Bank restructuring loans worth Rs 5,350 crore and Bank of India worth Rs 4,800 crore.
And since private sector banks have a higher share of retail loans, restructuring becomes difficult. PSBs have a lower share of retail loans and have been able to work around the new norms.
In absolute terms, the NNPA of 13 private banks increased from Rs 4,966 crore in 2007-08 to Rs 6,761 crore in 2008-09. Among the private banks -Yes Bank showed the highest growth in NNPA, followed by South Ind Bank. The NNPA of ICICI Bank increased from Rs 3,490 crore to Rs 4,554 crore during the study period.
For 25 PSBs, the NNPA increased from Rs 17,331 crore to Rs 20,426 crore. The highest increase in NNPA was seen in the case of Union Bank and State Bank of Hyderabad. The countries largest bank, SBI, registered a growth of 28.7% in sticky loans during 2008-09.
Among private banks, ICICI Bank increased its NNPAs to net advances ratio from 1.55% in 2007-08 to 2.09% in 2008-09 and HDFC Bank from 0.50% to 0.60%.The top three private banks in terms of ratio of NNPAs to advances in 2008-09 are Kotak Mahindra Bank , ICICI Bank and ING Vysya Bank. Among PSBs, Indian Overseas Bank increased its NNPAs to net advances ratio from 0.60% to 1.33% and Canara Bank from 0.84% to 1.09%.
The top three PSBs, in terms of ratio of NNPAs to advances in 2008-09 are SBI, Indian Overseas and Central Bank Of India. The highest decrease in NNPA during 2008-09 was seen in IndusInd Bank among private banks and PNB among PSBs.