Lower NPAs: Analysts bullish on private sector banks

Prashant Mahesh, ET Bureau | 24 Oct, 2013, 08.41AM IST

Many investment experts have written off the banking sector. They say the recent lacklustre performance of HDFC Bank, the largest bank by market capitalisation, underlines the sagging fortunes of the sector.HDFC BankBSE 1.73 % reported a slower profit growth for the September quarter. Against a 30% profit growth which the bank reported for a decade, its profit growth slowed down to 27%.

Tight liquidity and higher cost of funds were some of the reasons which led to lower margins for the bank. “The near-term outlook for the sector is bleak. Slowdown in growth,high inflation and a likely rise in repo rates by 25-50 basis points will lead to higher slippages and keep margins of banks under pressure for the next couple of quarters,” says Vaibhav Agrawal, VP (Research), Angel Broking. However, some analysts are still recommending a few select private sector bank stocks as they feel they are likely to fare marginally better in the long run.

Analysts recommend these stocks due to their strong asset quality, but advocate investment only on dips as the valuations of these stocks are rich and their upside could be capped. “Private sector banks are likely to perform better than their public sector counterparts due to their lower NPAs, aggressive management and ability to protect margins. Despite their higher valuations, you could buy some of these stocks on dips,” says Suruchi Jain, analyst, Morningstar India.

NO TAKERS EVEN AT ROCK BOTTOM

While public sector banks have been battered badly, some private sector banks have seen their stock prices move up marginally in the past one year. While SBIBSE 1.14 % is down to Rs 1,676 from Rs 2,235 and Canara BankBSE 1.67 % declined to Rs230.8 from Rs443, private sector banks IndusInd BankBSE 0.65 % jumped to Rs 425 from Rs 362 and HDFC Bank rose to Rs669 from Rs639. The sharp fall in PSU bank prices has lowered their valuations even further in the past one year.

Many PSU banks are quoting at rock-bottom valuations, with a price-tobook value lower than 0.5. For example. Oriental Bank of Commerce (OBC) quotes at a P/BV of 0.38, Corporation BankBSE 0.27 % at 0.43, Union Bank of IndiaBSE 2.16 % at 0.44, and Indian Bank at 0.31. However, analysts still don’t recommend these stocks, because they fear there will be no let-down in slippages plus restructuring of loans.

Given the increase in restructured loans for banks in 2012-2013, analysts expect higher levels of loan loss provisions for banks in the coming months, which will dent the profitability of these banks. According to a report by Nomura Securities, as of 2013, over 94% of the banking sector’s net non-performing loans (NNPLs) are on the books of PSU banks.

The report further points out that in a stress-case scenario, PSU banks could lose on an average of about 65% of their book value, while private banks appear much better placed (an average loss of 8% on book value). “The challenging business environment, RBI’s monetary tightening measures, higher credit costs will put margins of banks under pressure for most banks,” says J Venkatesan, fund manager, Sundaram Mutual Fund.

With IIP numbers continuing to be poor, chances of a recovery look grim. “Asset quality is strongly correlated to IIP numbers with a time lag of 3-4 months,” says Kaitav Shah, research analyst, Anand Rathi Securities. “It will take at least three quarters for the asset quality of PSU banks to turnaround,” says Vaibhav Agarwal. Experts say in this scenario it is best to avoid PSU banks and opt for private banks.

Levelling the playing field for banks

Illustration by Shyamal Banerjee/Mint

Live Mint :Viral  V Acharya :Sun, Sep 29 2013. 07 30 PM IST

Over the past year, the non-performing assets (NPAs) of Indian banks have risen steadily. They now exceed 5% of advances. This is a rather high number in an absolute sense, but also in the relative sense compared with banks in other countries. The NPAs are significantly higher for public sector banks than private lenders. The real problems may be deeper as many loans are under restructuring and not yet recognized as NPAs for their full likely losses.

While these balance-sheet numbers suggest concern regarding future losses, market-based data can help assess the preparedness of Indian banks to deal with these losses. At the V-Lab in New York University’s Stern Business School, we estimate the capital needs of banks in future stress. We use market data to assess the downside risk of banks and assess their gearing in a stress scenario by comparing their book liabilities to market value of equity after taking account of the downside risk.

Our estimates suggest that in the event of a minus 40% correction to the global market over a six-month period, as seen in the Great Depression and the Great Recession, publicly traded Indian banks and financial firms will require over $80 billion of equity capital to maintain a market equity ratio of 8% relative to their assets.

To put this number in perspective, let us benchmark it. The required capital need would be over 5% of India’s current gross domestic product (GDP) and over 60% of the market value of equity of these firms. The same number for China is about $480 billion, so 6% of China’s GDP, but less than 35% of the market value of equity of the financial sector.

While a minus 40% correction to the global market is arguably a rather stressed scenario, these numbers suggest the Indian financial sector’s capacity to recapitalize itself in future stress is worth a careful scrutiny. What is somewhat disturbing is the composition of the capital needs we estimate. More than $50 billion of our estimate comes from 10 large public sector banks, and it is twice their market value of equity. This is consistent with higher NPAs at these banks than other banks.

Why have public sector banks done worse than private sector banks in terms of asset quality? And, why are they so vulnerable to future stress?

The seeds of the troubles at public banks were in fact sown in the autumn of 2008. As the Indian banking sector experienced unexpected funding problems in late 2008, some private sector banks heavily exposed to the wholesale markets became vulnerable. Deposits, retail and especially corporate, flooded the public sector banks. Private sector banks could increasingly borrow only at shorter end of the maturity, whereas term deposits flocked the public sector banks.

My research with Nirupama Kulkarni of the University of Berkeley documents that this flight of deposits out of private sector banks was worst for the riskiest private sector banks. In contrast, the flight into public sector banks benefited them indiscriminately. That is, even the risky public sector banks experienced deposit inflows. The flight of depositors was clearly in pursuit of the stronger government guarantees perceived for the public sector banks, since unlike private banks, they would receive ready injection of government capital.

This lack of a level-playing field in deposit funding in 2008 has had deep consequences for leverage and asset-quality decisions of the Indian banking sector over the past five years. Disciplined by the funding problems then, private sector banks have, by and large, operated at much lower leverage, often less than half of the public sector banks, even though their reliance on fragile wholesale funding appears to have survived in case of some banks. The lower leverage has given these banks a greater cushion for absorbing future losses. Their lending since 2009 has also been much more prudent relative to public sector banks.

While the easy lending by public sector banks could be seen as the much-needed stimulus to the economy, such strategy of propping up growth through state-owned banks and finance companies has back-fired worldwide. The housing bust in the US and the current stress in the Chinese banking system from loans to infrastructure are cases in point. To address this vulnerability, two steps are worth considering.

First, some of the public sector banks that have most gearing should be recapitalized now and their debts reduced, as they still have reasonable market values of equity. This could be achieved, for instance, through deep-discount rights issues as my co-authors, Yakov Amihud and Sabri Oncu, have suggested. This will put the burden of further losses on their shareholders rather than on taxpayers in due course. It is also likely to improve their incentives to restructure troubled assets promptly.

Second, public sector banks need to be slowly weaned off their funding advantage coming from government guarantees. In the short run, this could be achieved by requiring them to pay a deposit insurance premium that compensates for the guarantee they cash in on in stress times. They could also be subjected to larger capital buffers given their funding reliance on the state rather than the market.

Over the long run, some of the public sector banks can be privatized or their assets reallocated. Some of them could be acquired by the relatively well-capitalized private sector firms; the ones with worst asset quality could be wound down; and, greater entry of smaller and newer banks can be enabled to maintain healthy levels of competition.

Viral V. Acharya is CV Starr professor of economics, department of finance, New York University Stern School of Business.

SBI’s bad loans indicate sharp deterioration in health of Indian firms

SBI’s large corporate portfolio has an NPA ratio of 1.7% now, a 1.5 percentage point rise from a year ago. Photo: Indranil Bhoumik/Mint

Live Mint :Ravi Krishnan : Mon, Aug 12 2013. 02 25 PM IST

The continuing contraction in manufacturing indicates that the situation will likely get worse, leading to more bad loans

State Bank of India’s (SBI’s) June quarter numbers are a reflection of the macroeconomic gloom surrounding Indian firms. The bank’s gross non-performing assets (NPAs) have shot up by Rs.9,702 crore, or 19%, since the end of March. As a proportion of advances, gross bad debt stood at 5.56%, the highest in at least eight years.

To be sure, India’s largest bank is not alone in reporting such numbers. The gross NPAs of 22 public sector banks grew 51% from a year ago to Rs.1.2 trillion in the June quarter. In short, the rise in SBI’s NPAs is a sign that, far from the economy having reached a bottom, the health of Indian firms continues to deteriorate sharply.

SBI reported fresh slippages worth Rs.13,766 crore in the three months ended June, almost the same as it had reported for the December and March quarters put together. On the other hand, it was able to upgrade only Rs.1,519 crore of loans in June, the lowest in the past five quarters.

Sure, there has been some let up in the volume of renegotiated loans. The bank restructured Rs.5,000 crore of loans in the three months ended June, compared with Rs.8,669 crore in the March quarter. But an increasing amount of recast loans, too, are slipping into the NPA category. About 26.4% of its restructured loans are in the NPA category compared with 25.3% three months ago. Taken together, recast and bad loans amount to 8.57% of SBI’s advances.

This steady rise in bad assets mirrors the wider malaise in the economy. While the majority of this increase in bad loans comes from the high-risk small and medium enterprise and agriculture portfolios, other industries are slipping as well.

For instance, SBI’s large corporate portfolio has an NPA ratio of 1.7% now, a 1.5 percentage point rise from a year ago. The mid-corporate segment has one of the highest bad loan ratios at 9.47%. These are among the fastest growing loan categories for the bank in the last couple of quarters.

This rise in bad loans has walloped the bank’s operating performance as well. The management laid the blame for a poor 3.5% increase in net interest income on the fact that they are no longer collecting dues from NPAs. A fall in low-cost current and savings account (Casa) deposits as a portion of the total also squeezed net interest margins. On the other hand, pension expenses have doubled and the bank’s cost-to-income ratio has gained by 8.7 percentage points from a year ago. Thus, operating profit fell 7.6% from a year ago.

The fall was curbed at this level owing to the cushion provided by 28% gain in non-interest income. Those gains were entirely from treasury income, as fees declined. Again, while the bank provided Rs.531 crore for marking down the value of some foreign investments, it crimped on loan loss provisions. As a result, its provision coverage ratio declined from 66% to 60.6% three months earlier. Bereft of the treasury income, and the rejigging of provisions, the net profit decline would have been greater than the reported 13.6%.

The road ahead looks bleak. Reserve Bank of India’s (RBI’s) tightening started only in mid-July and the finance minister’s statement in Parliament on Monday to combat the external vulnerability hasn’t inspired much confidence. The continuing contraction in manufacturing as shown by the July index of industrial production and the PMI indices indicate that the situation will likely get worse, leading to more bad loans.

Already, several brokerages and rating agencies have pared their economic growth forecasts. Rating agency Standard and Poor’s, meanwhile, expects the industry’s bad loans to swell to 3.9% of loans by the end of this fiscal year and to 4.4% by fiscal 2015, from 3.4% in the year ended March.

For SBI, which accounts for one-fifth of the listed banks’ advances and nearly 30% of bad loans, the effect is a bit magnified. Its stock has fallen to a level last seen almost 21 months ago. In the interim, the Bankex has gained 17.7% and the Sensex 20.8%.

The $7 trillion problem that could sink Asia

William Pesek :: Fri, Aug 02 2013. 10 13 AM IST

It’s our currency, but it’s your problem. This musing from Nixon-era treasury secretary John Connally is about to find new relevance as the White House battles Republicans over raising the US debt limit.

Connally couldn’t have foreseen how right he would be 42 years on as Asia sits on almost $7 trillion in currency reserves, much of it in dollars. Asia’s central banks are engaged in a kind of financial arms race after a 1997 crisis, stockpiling dollars as a defense against turmoil. That altered the financial landscape in two ways: One, Asia now has more weapons against market unrest than it knows what to do with. Two, Asia is essentially America’s banker, with China and Japan having the most at stake.

That might be less problematic if not for Capitol Hill’s propensity for shooting itself in the foot. A pointless squabble over the debt ceiling prompted Standard and Poor’s to yank the US’s AAA credit rating in August 2011, sending panic through global markets. Asia is now bracing for months of posturing when the US Congress returns from its August recess.

In a perfect world, Washington’s bankers would threaten to call in their loans. Asian nations would sit White House and congressional leaders down and tell them to get their act together. But Connally’s 1971 observation is infinitely truer today than at any time in Asia’s history. We need to stop considering huge reserve holdings as a financial strength. They are a trap that is complicating economic policy making. It’s time Asia devised an escape.

Fiscal matters

China isn’t without leverage. It’s no coincidence that new treasury secretary Jacob Lew’s first overseas visit in March was to his banker-in-chief, Xi Jinping, in Beijing. Nor did it go unnoticed that Lew was the new Chinese president’s first foreign-official meeting. Lew may have been sending Xi a signal this week by calling on Congress to act in a way that doesn’t create a crisis on fiscal matters.

But that leverage is limited. Xi and Premier Li Keqiang are engaged in a risky rebalancing act, trying to wean the Chinese economy off exports without fanning social unrest. Another debt- limit tussle would fuel market volatility, strengthen the yuan as the dollar plunges, and result in the loss of tens of billions of dollars in China’s portfolio of US treasuries.

“They don’t like it,” says Leland Miller, the New York-based president of China Beige Book International. “But while they’re sure to make some loud noises about it, at the end of the day, they understand they have no option but to accept the hand they’re given.”

In Tokyo, Shinzo Abe faces a similar dilemma. An important pillar of the prime minister’s plan to end deflation and restore healthy growth is a weak yen. The currency’s 17% drop since mid-November has helped even down-and-out Sony Corp. eke out some profits. Yet the yen would surge anew on another US downgrade: In 2011, a giant flight-to-quality trade drove huge amounts of capital Japan’s way.

The more Asia adds to its holdings of US debt, the harder they become to unload. If traders got even the slightest whiff that China was selling large blocks of its $1.3 trillion in dollar holdings, markets would quake. The same goes for Japan’s $1.1 trillion stockpile. So central banks just keep adding to them. Pyramid scheme, anyone?

Never before has the world seen a greater misallocation of vast resources. Loading up on dollars helps Asia’s exporters by holding down local currencies, but it causes economic control problems. When central banks buy dollars, they need to sell local currency, increasing its availability and boosting the money supply and inflation. So they sell bonds to mop up excess money. It’s an imprecise science made even more complicated by the Federal Reserve’s quantitative-easing policies.

Stealth selling

At the very least, Asia should stop adding to its dollar holdings and consider ways to bring more of those funds home. They could be used for infrastructure, education, research and development on cleaner energy, or any other vital investments in the future. The question, of course, is how?

There is a clear first-mover advantage for smaller economies. South Korea (with $53 billion in treasuries), the Philippines ($40 billion) or Malaysia ($18 billion) could try to dump dollars on the sly. Bigger ones couldn’t pull that off in this hyperconnected, 24/7-news-cycle world; news of sizable central-banker sell orders would inspire copycats.

Washington can help, and not just by avoiding another suicidal debt-limit fight. The treasury should engage with its Asian counterparts in a cooperative, transparent brainstorming process to draw down their reserves without devastating markets. It’s in the US’s best interest to keep more of its debt onshore, Japan-style, by attracting greater purchases from cash- rich US companies. That would make the US less vulnerable to capital flights in the future.

If ever there were a time for a currency summit, it’s now. Perhaps the International Monetary Fund or the Group of 20 can host the debate. Such high-level discussions would help Asia set goals and consider the mechanics and timing of reclaiming more of its savings. Only then will all those dollars start being the solution to Asia’s challenges, not the problem. Bloomberg

Banks' profitability likely to come under pressure

BE :Manojit Saha  |  Mumbai  July 3, 2013 Last Updated at 21:36 IS
Amid rising NPAs, the sector may face headwinds from higher provisioning, lower treasury gains & margin pressure

On Wednesday, the Reserve Bank of India (RBI) proposed - in a draft circular - that banks have to make provisions on the unhedged currency exposure of a corporate borrower. Unhedged foreign currency exposures of corporate borrowers is an area of concern for the regulator in the wake of the sharp depreciation of the rupee. 

Unhedged foreign currency exposures can result in significant losses to companies due to exchange rate movements. These losses might reduce their capacity to service the loans taken from banks and thereby affect the health of the banking system.

In several interactions with the bankers, RBI had indicated that merely 40-50 per cent of corporates' exposures are hedged. Large banks are likely to be impacted the most if the proposal is implemented. RBI has suggested additional standard provisioning of 20 basis points to 80 basis points depending on the unhedged portion.

"We believe the initial impact would be mainly on larger banks (public sector banks like State Bank of India, Bank of Baroda, Bank of India and Punjab National Bank and private banks like ICICI Bank, Axis Bank and HDFC Bank) as they are actively involved in lending through foreign currency, especially long-term loans," Kotak Securities said in a note to its clients.

A report by Emkay Global estimates an impact of three-six basis points on the return on assets for public sector banks while the same for private banks would be lesser.

Banks are facing higher provisioning on restructured advances also, with the central bank implementing the Mahapatra committee recommendation. From June 1, fresh restructured standard assets will attract provisioning requirement of five per cent, as compared to 2.8 per cent earlier.

 The full impact of the increase in provisioning will be felt in the September quarter. Also, for the existing restructured assets portfolio, the provisioning has to be gradually raised to five per cent by March 2016.

There is some pressure building up on the treasury front also as yields on government bonds have started hardening on expectation that RBI will hold the key rate again in the first quarter review of monetary policy scheduled end of July. This should also reflect in the treasury income of banks in the September quarter. 

The rate cut hope was dashed following the sharp depreciation of the rupee which is the worst performing Asian currency since April. A fall in the rupee impacts inflation and inflationary expectation adversely since the country heavily depends on crude oil imports.

Net interest margins of the banks are also likely to see some pressure in this quarter as banks will start cutting interest rates on loans or their base rates. However, since deposit growth is sluggish it may not be possible for banks to cut the deposit rates and even if some rates are revised, it will be only for new depositors. A change in the base rate cut impacts both existing and new borrowers.

On the whole, since public sector banks have higher share of restructured assets, the impact for them will be higher as compared to private sector banks.

Govt banks writing off more loans than they recover

Vrishti Beniwal  |  New Delhi  July 5, 2013 Last Updated at 00:49 IST

FinMin identifies 17 lenders who wrote off Rs 11,000 cr loan
 vis-a0vis Rs 4,000 cr recovery in Q4

Public sector banks are writing off more loans than they recover, despite repeated advisories from the finance ministry. In the fourth quarter of the last financial year, of the 26 state-run lenders, as many as 17 banks had written off more loans than they recovered.

The write-off by these 17 banks in the January-March quarter of 2012-13 was higher than the write-off by all the 26 public sector banks in 2011-12.

According to data compiled by the finance ministry, 17 public sector banks, including big lenders like State Bank of India, Bank of Baroda and Punjab National Bank, had written off loans worth Rs 10,777 crore in January-March quarter, while the recovery was Rs 4,172 crore during this period. During 2011-12, public sector banks wrote off loans worth Rs 2,300 crore, while the recovery was Rs 47,800 crore. The issue has alarmed the finance ministry, which in a note to the banks, highlighted the practice and reminded them the issue was raised as early as July 2006 and was reiterated in March this year. The issue was raised during a meeting of bankers with Finance Minister P Chidambaram on Wednesday. (ASSETS CONCERN)

To address the problem of rising non-performing assets (NPAs), Chidambaram had said banks “must recover higher than what they write-off in a year.” A loan is written off after making 100 per cent provision, which hits bank’s profitability. However, this also helps banks to show lower gross NPAs. Banks, particularly the government-run ones, are facing headwinds as far as asset quality is concerned amid economic slowdown. Not only gross and net NPAs of public sector banks are higher than that of their private sector counterparts but these banks also share higher burden on restructured loans.

The finance ministry has asked banks to initiate penal measures against wilful defaulters. The measures may include not granting additional facilities to such defaulters, debarring entrepreneurs/promoters of defaulting companies from institutional finance from floating new ventures for a period of five years.

The government also asked the banks to strengthen the recovery management and to have a board-approved policy on recovery. Banks have been asked to put in place an effective mechanism for information sharing for sanction of loans to new or existing borrowers.

In addition, banks were told to constitute a board-level committee for monitoring of recovery. Further, banks have been asked to lodge formal complaints against the auditors of such borrowers, if it is observed that the auditors were negligent or deficient in conducting the audit. Chidambaram has asked banks to focus on top 30 NPAs and take action against defaulters, as these account for bulk of the bad loans. Gross NPAs of public sector banks stood at 3.78 per cent of their advances at the end of March 2013 against 2.32 per cent at the end of March 2011. Gross NPAs of the country’s largest lender, State Bank of India, were at 5.17 per cent at March-end 2013.

The three legal options available to banks for resolution of NPAs/recovery of loans are: the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act, 2002), Debt Recovery Tribunals and Lok Adalats.

Restructuring pressure to continue for SBI in Q4

By Simran Gill, ET Now | 20 May, 2013, 10.38AM IST

State Bank of India could see a significant rise in its restructured assets for the fourth quarter. The country's largest bank is due to announce its fourth quarter results onThursday, May 23, 2013.

 According to sources, SBI could see restructuring close toRs 8000 crore for the fourth quarter.

 The chunk of the restructuring for the quarter includes one large account which is Suzlon, where SBI's exposure is close to Rs 1600crore . 

The other restructured accounts are mainly smaller accounts coming from sectors like infra, mid-corporates, iron and steel. 

According to analysts, this high amount of restructuring could see a significant rise in provisions on restructured accounts for SBI in Q4. The Reserve Bank of India has recently enhanced provisioning requirements for banks' restructured assets, and this amount may end up being a drag on the bank's profits.

However, asset quality overall seems to have eased for the bank. Though SBI saw bad loans rise through FY13 with fresh slippages as high as Rs 10000 crore in Q2 FY13, Q4 seems to have eased the pressure. According to a person with direct knowledge, fresh slippages for the fourth quarter could be between Rs 5000-6000 crore, a figure much less than what the bank has seen in previous quarters.

Sources also say that write-offs for Q4 could be to the tune of Rs 2000 crore, and loan recoveries could amount to Rs 1000-1200 crore.

 Not just that, upgradations of loans from theNPA to standard category could also be high for the quarter, at around Rs 4500-5000 crore.

Even the bank's chairman Pratip Chaudhuri has told media "NPAs for Q4 will be much lesser than Q3 and also what they saw in the previous quarters. Gross non-performing assets have come down to Rs 49,000 crore from the Rs 52,000 crore earlier in Q3 down to 4.5 per cent from 5.3% in preceding 3 months period. The bank still continues to face stressfrom contractors which are facing delay in payments, iron and steel, infra and construction sectors to name a few."

Banks stem rot in loans, gross NPAs down

Financial Chronicle: Manju AB May 05 2013 , Mumbai

The gross non-performing assets (NPA) in the banking system has come down, according the provisional data available with the Reserve Bank of India (RBI), to 3.35 per cent of gross bank advances (amounting to Rs 55,14,163 crore) down from the 3.6 per cent reported at the end of December 2012. A bank loan which is not serviced for more than 90 days is termed as non-performing and banks need to set aside capital against such bad assets. This capital buffer is called provisioning.

The Reserve Bank of India governor D Subbarao confirmed that gross non-performing assets have declined and the growth in restructured assets over the previous year have been flat, but he refused to commit a figure to the consolidated bad debt, suggesting that the estimates were provisional and would be revised once the final results of all the banks were announced.

After announcing the annual credit policy last Friday, Subbarao told Financial Chronicle, “NPAs are still a problem, but their growth is declining. At the end of December 2012, gross NPAs, at 3.69 per cent, had moved up from 3.5 per cent in March 2012. The most recent preliminary numbers for March 2013 show a decline in the gross non-performing assets.”

“NPAs have been growing continuously for the past few years. But at worst NPAs have stopped growing. Now they are flat. Even the growth in the restructured standard advances has been flat over the previous year. So, I can’t say that the NPA situation has improved dramatically, but at least, it has stopped worsening,” he said.

According to bank sources, the fall in NPAs may be due circular send by RBI on September 7, last year, asking banks to provision immediately for all the bad debt by the end of the quarter itself. Bank auditors were asked to give a letter certifying that all bad debt had adequate provisioning.

“Even when we were at the peak of the problem, we have maintained that it does not pose a systemic risk. Our banks are sufficiently capitalised to withstand shock of an NPA of this level,” governor Subbarao told this newspaper.

The gross NPAs of the banking system at the end of 2011 was Rs 97,900 crore, having grown 15.7 per cent over the previous year. At the end of March 2012, the gross NPAs had grown 45.3 per cent to Rs 142300 crore of gross advances.

RBI’s macroeconomic and monetary developments report (MMD) released on May 2, said that nearly half of the 566 central sector projects (of Rs 150 crore and above) were delayed and there had been cost overruns to the tune of 18 per cent, as on January 1. RBI estimates that a substantial portion of bank credit may be locked up in these projects.

“It is concern that bank credit may be locked up in these projects, but the bigger concern is that so much of investments is idle. That investments could have gone to productive sectors and these investments would have eased supply constraints, and that has not happened,” the governor said.

Restructuring of advances, writing off accounts, upgrading accounts and effective recoveries have been some of the methods resorted to by banks to contain the deterioration in asset quality caused by burgeoning NPAs.