JOIN USAccording to the credit rating agency ICRA, the gross Non-Performing Assets (NPAs) of banks could rise to 4.2-4.4 per cent by March 2014, from 4.1 per cent as on December 2013.
The Gross bad loans of 40 listed Indian banks grew to Rs 2.43 trillion at the end of December 2013, a 36 per cent increase over previous year.
The NPA accretion in the banking sector between 2001-2007 was Rs 1.6 trillion and it grew three times to reach Rs 4.7 trillion between 2008-2013 which excludes the write off amount of Rs 1,41,000 crore between 2007 and 2013.
A study conducted by Credit Suisse found the share of ten large corporate groups in total banking sector credit has become more than double between 2007 and 2013 while the overall debt of these groups rose six times from Rs one trillion to over Rs six trillion.
The question is when the global financial sector collapsed in 2008 due to poor credit appraisal, why the Indian banking sector had not sharpened its credit management skill between 2007 and 2013?
Indebtedness
In the post crisis period, banks overlooked promoters’ equity strength, their credit history, the source of equity and their indebtedness.
Banks sanctioned loans to wine manufacturers in Nashik despite knowing the facts that the local producers cannot compete with the foreign brands.
Majority of the wine farms became sick within three years.
Many banks sanctioned loan to more than 100 hydro-electric projects in Uttarakhand without making environmental appraisal.
The flash flood in 2012 uprooted many of those projects.
Tractor companies’ cash incentives and government subsidy available for buying tractors had let banks sanction tractors loans aggressively without mapping the potential.
Many tractors loan turned NPA in the process. More than a dozen shopping malls in Pune were closed within three year due to loss.
Banks have failed to examine the credential of engineering colleges and sanctioned education loan which turned bad.
Credit for agriculture production and marketing turns toxic mainly due to politicians who promise loan waivers during election time.
Agriculture sector constitutes 5.5 per cent of the gross NPA followed by Industries by September 2013.
The Andhra Bank's NPA in power sector is 11 per cent since the bank had not examined the availability of gas before sanctioning the projects which have become defunct due to non-availability of gas.
According to India Ratings and Research Pvt Ltd, the Indian banks’ stressed assets will grow to 14 per cent of the total loan by March 2015.
Analysts predict both bad loans and the loans which will need restructuring will rise to Rs 10 lakh crore in 2014-15.
Between April 2013 and December 2013, every one rupee lend by bank, 13 paise has become NPA. RBI Deputy Governor K C Chakrabarty, who quit his job ahead of his retirement, reportedly blamed bankers, corporate debt restructuring and lax appraisal for the bad loans in banks. In fact, bankers are not solely responsible for bad loans.
Poltico-business-middlemen lobby is also responsible for bad loan as the lobby put pressure on bankers to relax appraisal norms and overlook credit history of the borrowers.
In spite of NPA growth the public sector banks (PSB) are always more accessible to general public. Maintenance of books of accounts, transparency, public dealings, internal checks and controls and in achieving financial inclusion, PSBs are far ahead of private banks.
Today PSBs have got three fourth of the entire banking sector asset amounting to Rs 83 trillion.
They can add fuel to India’s growth engine if they address the root cause of their NPA growth. Unless they take hard decision to nip NPA growth in the bud, the cycle of lusty lending, recapitalisation and NPA will continue to dent economy.
As per Banking Regulation Act, 1949, one of the main objectives of banks is to serve public interest.
PSBs must maintain good health in view of India’s population, poverty, backwardness, financial illiteracy, looming frauds and corruption.
Total revamping of credit rating agencies, improvement in market intelligence, economic analysis, enhancement in the quality of risk based supervision, accuracy in credit profile of borrowers and induction of relevant techno savvy staff can reduce NPA threat.
But the attitude to serve public must be planted in young minds.