Are Banks In Trouble ????

Trouble in the bank

Many banks have reported sharp increases in non-performing assets (NPAs) in their last quarter results. And significantly, this time it’s not just the usual suspects — public sector banks (PSBs). While the bad loans for the likes of Indian Overseas Bank, UCO Bank, PNB and Bank of Baroda have gone up, the fact that even the country’s largest private sector lender, ICICI Bank, has shown a significant rise in both NPAs and “restructured” advances is cause for further worry. Indeed, it is the slippage of restructured loans — those whose original maturities may have been extended or interest rates lowered –  into NPAs that tells a larger story. The restructuring of these advances was predicated on the assumption of the economy turning around, enhancing the borrowers’ ability to meet their servicing obligations. Instead, we are seeing more and more restructured loans turning into NPAs, indicative of no real recovery on the ground.

This situation is dangerous when stressed assets — NPAs plus restructured loans — were already 10.7 per cent of total bank advances as on September 2014, with the ratio at 12.9 per cent for PSBs. If bad debts continue to mount, it will force banks to make higher provisioning against losses, thereby cramping their capacity to lend and undermining even a fledgling recovery. High domestic interest rates will only worsen things, as banks find better rated corporates preferring to raise cheaper funds through offshore bond issues. High interest rates and sluggish growth will, moreover, make it difficult for distressed borrowers to repay, further adding to the NPAs.

It is high time the government starts acting on, rather than simply recognising, the above problem. More than a month has passed since the bankers’ retreat or Gyan Sangam that even the prime minister, finance minister and RBI governor attended, but many PSBs are still without chairmen. Today, state-owned banks desperately require capital infusion, which can only come from the markets. But will investors put money in concerns that are headless and whose boards aren’t empowered to take commercially prudent decisions? One indicator of what the markets think about banks — mainly PSBs — is that while the BSE Sensex has fallen 2.9 per cent in the last eight trading sessions, the Bankex index has dropped even more by 8.4 per cent. A lowering of policy interest rates by the RBI, alongside implementation of structural reforms in PSBs making them professional board-run entities, are calls that can brook no further delay. The banking system is today in the state it was in 2001 — and the worst might still be some quarters ahead

RBI cautions lenders on bad debt

Mumbai, Feb 9 (IANS) The Reserve Bank of India (RBI) Monday said it has cautioned lenders on the need to improve asset quality and curtail non-performing assets (NPAs) which have increased in the recent past.

 

Speaking to reporters here, RBI's Deputy Governor R. Gandhi said asset quality has always been a concern following the global financial crisis.

"We have been continuously cautioning banks about slippage of stressed assets and we have been guiding banks in recovering," Gandhi said.

The prolonged and steep economic downturn, accompanied by high interest rates, has led to a sharp deterioration in asset quality for the banking sector and increased the pressure of NPAs.

The percentage of gross non-performing assets (GNPAs) for the banking sector is expected to worsen from 3.9 percent of advances in fiscal 2013-14 to about 4-4.2 percent in 2014-15, Moody's analyst ICRA has said in a report.

Bad and restructured loans crossed 10 percent of all loans in mid-fiscal 2013-14 and are expected to touch the 15 percent mark by the end of the financial year 2014-15.

During the April-December period last year, the banks had recovered Rs.18,933 crore, which is only about 20 percent of the total non-performing assets of about Rs.192,000 crore in the banking system.

Earlier, Finance Minister Arun Jaitley had said that banks are taking a number of steps against wilful defaulters to recover loans as there has been a major spurt in NPAs.

"It is normal for the banks to have 2-3 percent of NPA. But in the last 2-3 years, the NPA has increased substantially and gone up to 6 percent. Stress assets have also increased," Jaitley had told the Lok Sabha during the question hour.