Rs 1,50,000 crores

Source : Financial Express :GEORGE MATHEW:, 

Dec 26, 2011 at 0334 hrs IST

Mumbai: The Reserve Bank of India’s worst fears are likely to come true on the asset quality front with gross non-performing assets (NPAs) of the banking sector set to cross the Rs 150,000 crore mark during the fiscal ended March 2012, indicating a rise of nearly three times from Rs 56,000 crore in 2008.

“The gross NPA ratio is expected to increase to around 3 per cent by March 31, 2012, from 2.3 per cent as of March 31, 2011. The increase was already visible in the first six months, where the GNPAs of the system increased to 2.7 per cent as of September 30, 2011,” rating firm Crisil said in a note prepared for The Indian Express.

A gross NPA ratio of 3 per cent means the fig-ure will reach Rs 150,000 crore by March 2012. The priority sector, including SMEs and agriculture, apart from retail, real estate and infrastructure sectors, are contributing the maximum to the stressed assets.

There are two key reasons for the deterioration in the asset quality: First, the increase in interest rates amidst slowing economic growth is leading to weakening debt servicing ability of the corporate sector, including small and medium enterprises; second, banks are migrating to


“Certainly bad loans are on the rise. We hope the situation will become better when the economy picks up steam in the coming quarters,” said the chairman of a nationalised bank.


In its Financial Stability Report released last week, the central bank has warned of a further rise in bad loans in the banking system on the back of the slowing economy and fall in credit growth. The growth rate (year-on-year) of NPAs at 30.5 per cent as of end September 2011 has outpaced credit growth of 19.2 per cent. Slippages (i.e. fresh accretion to NPAs) too have outpaced credit growth and grew at 92.8 per cent (year-on-year) as of end September 2011.

“An analysis of the growth rate of NPAs shows that the growth rate in the first half of 2011-12 at 25.5 per cent is more than triple the average growth rate of 7.4 per cent in the first half years during 2006-2011,” the report said.


In the infrastructure segment, though the NPAs as a ratio of outstandings remained low at 0.6 per cent, power and telecom sectors saw a rise in impairments and restructuring. However, going forward, if growth slows down, there could be further impact on the asset quality in this sector.


Crisil said the sectors that are under stress are state power distribution companies, power generation projects with limited pass-through of fuel costs and/or without adequate fuel linkage, airlines, microfinance in the....state of Andhra Pradesh, and the new entrants in the telecom sector. “The commercial real estate sector is also facing significant overcapacity leading to higher vacancies and pressure on rentals,” it said.

On top of this, the RBI has expressed apprehension about underestimation in NPAs. “In the RBI’s view, in certain cases, the statutory auditors have underestimated the extent of NPAs and the required provisioning. Since the RBI, as the supervisor of the banking system, relies and leverages on the work done by auditors, the profession should effectively address this issue,” RBI Governor D Subbarao said last week.