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Current affairs is an important component of several competitive exams such as the UPSC Civil Services Examination, SSC CGL, Bank PO & PSU entrance tests, etc. Therefore, understanding the terms/concepts/events that make news is critical for aspirants. We at PaGaLGuY bring you series of articles explaining some of these important concepts/events. This article is about Indian public sector banks suffering due to rising NPAs.
Stressed assets including non-performing assets (NPAs) and
restructured loans have been a major cause of worry for public sector banks (PSBs).
As many as 14 PSBs have stressed assets that amounted to over 13.03 per cent of
their total advances as of December 2014. Gross NPAs of PSBs have been declared
to be Rs.2,60,531 crore.
Overall, the Indian banking system’s GNPAs increased from
3.9 per cent as of March 2014 to 4.4 per cent as of March 2015. Stressed assets
outstanding (GNPAs plus standard restructured advances) reached an unprecedented
high of 10.6 per cent as of March 2015.
What’s an NPA?
A non-performing asset is one that ceases to generate income
for a bank. In other words, an NPA is any credit/loan on which the bank fails
to recover interest and/or installment of principal for over 90 days.
These are classified into 2 categories – gross and net NPAs.
Gross NPAs (or GNPAs) are the sum of all loan assets that are classified as NPAs
as on balance sheet date as per RBI guidelines. It comprises standard,
sub-standard, doubtful and loss assets. Net NPAs shows the actual burden of
banks; those in which the bank has deducted the provisions for bad assets.
Loans are also restructured to prevent them from turning
into NPAs and hence are known as restructured loans.
Top defaulters
Major chunk of restructured loans are from the corporate
sector. Bad loans of the top-30 defaulters amounts to Rs.95,122 crore or 36.5
per cent, which is more than one-third of the total GNPAs of PSBs.
According to a report prepared by the Union Finance Ministry’s
Department of Financial Services (DFS), Central Bank of India tops the list of
14 banks with 21.15 per cent of its advances stuck in NPAs and restructured
loans. It is followed by United Bank of India with 19.04 per cent of stressed
assets, Punjab & Sind Bank-18.25 per cent, Punjab National Bank-17.85 per
cent and Indian Overseas Bank-17.70 per cent. State Bank of Patiala, Allahabad
Bank and Oriental Bank of Commerce have bad and restructured loans over 15 per
cent.
Major reasons
·
Sluggish domestic growth in the recent past
·
Slump in global recovery
·
Uncertainty in the global markets causing a drop
in exports of various products like textiles, engineering goods, leather and
gems
·
Since huge corporate loans make up a big share
of PSBs’ credit portfolio, sectors like infrastructure, steel, textile,
aviation, and mining wherein PSBs have wide exposure, have majorly contributed
to the rise in NPAs.
Private banks fare
well
Private banks seem to be faring better than their public
sector counterparts. Increase in market share, growth in deposits and advances,
increased operation and net profits, are some positive indicators.
·
The gross NPA ratio is 3.78 per cent for ICICI
Bank for 2014-15 as against 3.03 per cent the previous year.
·
While private banks’ net profits rose from 17.66
per cent in 2014 to 18.11 per cent in 2015, public banks’ profits dropped about
1 per cent this year.
·
Operating profits of private banks rose around
19 per cent this year while in public banks it is only an 8 per cent rise.
·
In 2015, deposit growth in public banks has been
only 9.13 per cent as against private banks’ 16.16 per cent.
·
Private banks’ advances grew close to 19 per
cent as against public banks’ 8.13 per cent.
CRISIL Ltd. has estimated private sector banks to grow
doubly faster than the capital-deficient PSBs, in the next 4 years.
Rating agencies’ take
While the RBI has urged banks to improve governance to
reduce NPAs, credit rating agencies paint a bleak picture. ICRA Ltd. expects the
percentage of bad loans across Indian banks to rise and cross 5 per cent in the
current fiscal year.
Further, CRISIL Ltd. has projected that bad loans in banks will
rise from 60000 crore to 4 trillion in the current fiscal. “Weak assets are
expected to stay high at 6 per cent (Rs.5.3 trillion). Worryingly, exposure of
banks to vulnerable sectors is expected to remain high, just the way it was in
2014-15,” CRISIL said in a statement.”
Damage control steps by
PSBs
Public-sector banks have put Rs.14,000 crore worth of NPAs
up for sale, to ease the burden of stressed loans on their balance sheets.
The government has permitted PSBs to raise funds from the
market. While State Bank of India (SBI) is expected to raise over Rs.16,000
crore for their capital requirement, Oriental Bank of Commerce has the
permission to obtain Rs.1,000 crore from the market.
This will be possible with the government’s decision to
reduce its holding in banks to 52 per cent. Government of India controls 22 banks
through majority stake, out of 27 PSBs. In the remaining five banks, SBI has majority
stake. Thus, PSBs could raise Rs.1.60 lakh crore in total by lowering government’s
holding.
Several other measures are being adopted to keep potential
bad loans in check. For instance-To decrease NPAs, SBI is steadfastly implementing
measures like web-based tracking of assets and ‘regular calls’ to stressed
accounts in retail and real estate segments to avert slippages.
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