News Gross NPAs of banks to touch 5% by March-end: Study -

IRIS :17-JAN-2014

Indian banking sector, which has witnessed an upsurge in non-performing assets for past three years, could see further deterioration with gross NPAs expected to touch 5% by the end of March 2014, according to the Assocham latest study.

''Sluggish economic growth and high interest rates are being touted as primary drivers for rising bad loans and if the economic scenario continues there is no doubt that asset quality would suffer further'', adds the Assocham study.

Other factors like delays in obtaining statutory and other approvals as well as lax credit appraisal and complacency in monitoring by banks were also significantly responsible for deteriorating asset quality. The asset quality of banks has deteriorated in the aftermath global economic crisis of 2008.

Releasing the study here today, the Assocham spokesperson said, gross NPA of the public sector banks were Rs 413.78 billion in March 2006, which came down to Rs 383.05 billion in March 2007 because of better economic environment. However, it has shown an upward trend since March 2008.

The ratio of gross NPA to advances for banks increased significantly, from 2.36% in March 2011 to 3.92% in June 2013. Public sector banks account for a disproportionate share of this increase. However, private sector banks especially new generation banks are performing much better by managing their NPA ratio in this difficult climate.

At the same time, restructured standard assets as a percentage of total credit more than doubled, from 2.6% in December 2010 to 6.1% in June 2013, points out the study.

As of September 2013, banks together approved Corporate Debt Restructuring (CDR) worth Rs 2.72 lakh crore out of Rs 3.62 lakh crore that came for restructuring.

Iron & steel and infrastructure sectors are the largest contributor to NPAs of the public sector banks. Besides, aviation, textiles and mining are also adding to the stressed assets, highlights the Assocham.

These five sectors together contribute around 24% of total advances of all banks, and account for around 51% of their total stressed advances at the end of September, 2013.

The chamber paper has pointed out that with continued slowdown in the industrial growth, pick-up in activity in infrastructure and iron & steel sector is expected to be delayed. Since concentration of distressed assets is higher in these sectors asset quality deterioration in banks is set to worsen.

Industrial production entered the negative territory after three months, contracting by 1.8% in October, 2013 mainly on account of poor performance of the manufacturing sector. It further contracted to six months low of 2.1% in November.

Factory output, as measured in terms of the Index of Industrial Production (IIP), grew by 8.4% in October last year, adds the Assocham.