RBI to meet banks for clear picture on NPAs

Written by Sunny Verma | New Delhi | Updated: Jan 26 2012, 10:01am hrs
Concerned over the perceived spike in banks bad loans, the Reserve Bank of India (RBI) has embarked upon a fresh appraisal of the situation. According to official sources, RBI deputy governor Anand Sinha will meet the countrys top 10 banks over the next few weeks to examine the non-performing assets (NPAs) profile of the banking system.

The RBI wants to ensure that the absolute quantum of bad loans remains within control. This exercise is to ensure that the system continues to remain as safe as it is now, RBI governor D Subbarao said on Tuesday.

There are fears that gross NPAs will touch R1.5 lakh crore by March, meaning the gross NPA ratio will increase to around 3% by then from 2.3% at the end of the last fiscal. The growth rate of NPAs during the first half of this fiscal has been the highest in the past six years, RBIs recent Financial Stability Report points out.

Sources said soaring bad loans is under the RBIs watch, especially after the system-driven reporting led to a spike in NPAs compared with manual reporting. The economic slowdown and stress in certain sectors such as aviation, power and infrastructure have added to the NPA build-up, apart from priority sectors, namely agriculture and small & medium enterprises.

RBI deputy governor KC Chakrabarty, though, maintained there is no cause for alarm over the NPA position of banks and that the proportion of restructured loans turning bad remains small.

An analysis of the growth rate of NPAs shows that the growth rate in the first half of 2011-12 at 25.5% is more than triple the average growth rate of 7.4% in the first half years during 2006-2011, as per the Financial Stability Report for the December quarter.

The major sectors that contributed to the increasing trend in NPAs were priority sectors, retail, real estate and infrastructure. Their combined share in gross NPAs of the banking sector stood at 85% as at end September 2011. Year-on-year growth in NPAs as at end September 2011 stood at 30.5%, surpassing the credit growth of 19.2%.

In the power sector, for instance, banks have discontinued fresh lines of credit to power distribution companies. But in case where state electricity boards unveiled restructuring plans, banks have resumed lending to distribution companies.

Public sector banks have been saddled rather badly with the NPAs over the past few quarters. Data from the corporate debt restructuring cell and debt recovery tribunals show rising stress in the Indian banking system.

Rating agency Crisil estimates the gross NPA ratio could increase to around 3% (or Rs 1.5 lakh crore) by March 31, 2012, from 2.3% as of March 31, 2011.

As a result of high interest rates and lower operating profits, Indias top 500 companies ability to service debt dipped to a five-year low, the agency said in a recent report.