Banks trying to clean up their balance sheets have come out with a whopping 96 per cent jump in non-performing assets or loans which remain overdue for a period of more than 90 days, to £62.97 billion as of June 2016, as against £32.05 billion in the same period last year.
State Bank of India led the list with its gross NPAs hitting £10.15 billion during the June quarter from Rs £564.07 million in the year-ago period. For the current quarter, the gross NPAs of banks had almost doubled with the ratio of gross NPAs to advances increasing sharply from 4.6 per cent to 8.5 per cent of their advances. "These high numbers were accounted for by the PSU banks which had witnessed 100 per cent growth in NPAs and virtual doubling of the gross NPA ratio from 5.3 per cent to 10.4 per cent," a study said.
Bad loans of PSU banks rose from £8.57 billion last year to £57.14 billion by June 2016, indicating that the RBI's asset quality review has unearthed £859.5 million bad debts in their books. A banking source said, "Banks had to stop window-dressing their loan accounts following the strict monitoring of the RBI. There was no ever greening of loans in the last two quarters." Private banks were also under pressure with 68 per cent rise in gross NPAs from £3.48 billion last year to £5.83 billion this year and their NPA ratio increased from 2.15 per cent to 3.03 per cent.
"Some banks, especially in the public sector had to make higher provisions in a bid to clean up their balance sheets. Others were pressurised by their move to shrink their balance sheets which in turn increased the NPA ratio. These moves have been undertaken as part of the consolidation drive by banks to put their accounts on stronger footing. It is expected that these NPAs will tend to decline in the next two quarters," Care Ratings said.
However, bankers said the bad loan issue would blow over in the next two quarters. "I think the pain will continue for one or two more quarters and it will vary from bank to bank based on their exposure to stressed borrowers and sectors. In the case of genuine borrowers, they are monitoring stressed assets closely to resolve various issues and giving support. I am sure that if genuine borrowers are supported, they will shortly come out," said Indian Banks Association chairman Ashwani Kumar.
The RBI said the clean-up of PSU banks would be over by March 2017. "Unfortunately, too many projects were left weakly monitored, even as costs increased. Banks may have expected the lead bank to exercise adequate due diligence, but this did not always happen. Moreover, as a project went into distress, private banks were sometimes more agile in securing their positions with additional collateral from the promoter, or getting repaid, even while public sector banks continued supporting projects with fresh loans. Promoters astutely stopped infusing equity, and sometimes even stopped putting in effort, knowing the project was unlikely to repay given the debt overhang," governor Raghuram Rajan had said in a recent speech.
