NPA's haunt banks...

Loan quality pressure continues to haunt banks

OUR BUREAUMUMBAI, SEPTEMBER 5:  Loan quality pressures continue to haunt public sector banks despite the improved sentiments in the market after measures were taken to revive the economy from policy paralysis, said rating agency ICRA in a report.The rate of generation of fresh non-performing assets (NPAs) remained elevated for public sector banks (3.5 per cent), and as a result their gross NPAs increased by 20 basis points (bps) to 4.6 per cent in Q1 FY2014; the NPAs of private banks also increased by 20 bps to 2 per cent for the same quarter, ICRA said in the report.ICRA analysed the performance of 26 PSBs and 15 private banks for the quarter ended June 30, 2014.“Going forward, ICRA expects PSBs’ gross NPAs to be at 4.4–4.7 per cent as on March 31, 2015, as against 4.4 per cent as on March 31, 2014 and 4.6 per cent as on June 30, 2014. Overall, the Gross NPAs of the banking sector (PSBs + private banks) could be at 4–4.2 per cent in March 2015, as against 3.9 per cent as in March 2014 and 4 per cent as in June 2014,” the report said.Drop in CDR referralsHowever, ICRA highlighted that there was a significant drop in fresh referrals to the CDR (corporate debt restructuring) Cell for restructuring during Q1 FY2015. If the current trend were to continue, one may expect some containment of the standard restructured book.Overall, the Gross NPA percentage plus 30 per cent of standard restructured advances remains large at 5.5–5.7 per cent (around ₹3.5-3.7 lakh crore as of June 2014) and may continue to impact profitability over the short term.Moreover, new investment norms for asset reconstruction companies too could add to the NPA pile-up.

(This article was published on September 6, 2014)

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