Asset quality pressures continue to take a heavy toll of public sector banks’ performance with non-performing assets (NPAs) jumping Rs 44,500 crore to Rs 2,72,700 crore, or 5.1 per cent of the gross advances, as of December 2014 as against Rs 2,28,200 crore during December 2013.
An analysis of bank results shows that PSU banks generated bad loans of Rs 21,700 crore during the October-December period alone. Further, 6.5 per cent of PSU banks loans were standard resturctured advances as on December 31, 2014.
This means 11.6 per cent, or around Rs 6,38,000 crore — which is more than enough to cover India’s fiscal deficit — of the loan portfolio of PSU banks are considered as stressed assets.
On the other hand, private banks’ gross NPAs and restructured advances were around 2.1 per cent and 2 per cent respectively, as on December 31, 2014, largely unchanged from the September 2014 levels.
While SBI’s NPAs came down to 4.90 per cent (Rs 61,991 crore) of gross advances as against 5.73 per cent (Rs 67,799 crore) in the same period of last year, the asset quality other leading PSU banks worsened.
Punjab National Bank, the second largest PSU bank, reported a sharp fall in NPAs at 5.97 per cent (Rs 22,211 crore) from 4.96 per cent (Rs 16,595 crore).
Indian Overseas Bank showed NPAs of Rs 14,500 crore (8.12 per cent) as against Rs Rs 9,168 crore (5.27 per cent) last year. Union Bank NPAs rose to Rs 12,596 crore (5.08 per cent) from Rs 8,776 crore (3.85 per cent).
Bad loans are expected to increase significantly in the next fiscal following withdrawal of regulatory forbearance on debt restructuring by the Reserve Bank of India. Gross NPAs could rise to 5.1-5.7 per cent by March 2016 from 4.5 per cent as in December 2014.
However, total stressed advances (gross NPAs plus standard restructured advances) could moderate in fiscal 2016 with economic activity picking up and the Reserve Bank’s norms for flexible structuring of loans to operational projects reducing the flow of impaired assets, says rating firm ICRA.
The overall stress in the banking system is likely to decline with higher economic activity, lower inflation, falling interest rates, and the likely resolution of fuel linkage and other impediments in the infrastructure sector, it says.
This may also support higher credit growth (from the current 11 per cent levels) and lower fresh stressed-asset formation (now at 4.6-4.8 per cent) over the medium term.
While recoveries and upgrades of bad loans dropped considerably in Q3, the NPA generation rate was largely unchanged at 3.3 per cent for PSU banks (3.7 per cent for nationalised banks and 2.4 per cent for SBI).
Fresh non-performing asset generation of PSU banks was impacted by higher slippages from restructured accounts (around 25 per cent of new NPAs generated during the third quarter).