Indian economy is at a dangerously critical period. This is
post economic restructuring in the last decade (2000 -2010). Very clear
reflection of this vulnerable situation is in the share of non-performing loans
in total advances.
So… !! What is 'Nonperforming
Loan - NPL'?
A sum of borrowed money upon which the debtor has not made his
or her scheduled payments for at least 90 days. A nonperforming loan is either
in default or close to being in default. Once a loan is nonperforming, the odds
that it will be repaid in full are considered to be substantially lower. If the
debtor starts making payments again on a nonperforming loan, it becomes a
reperforming loan, even if the debtor has not caught up on all the missed payments.
It is surprising to hear this even when I am saying it is after the economic
reforms. You may get more surprised if I tell you that these reforms were meant
to check and correct the problems or weakness and correct remove the problems
leading to more NPLs. The Idea behind
these reforms was to have freedom over financial prices and financial activity
for banks and have less control from the state. Bank resources where pushed towards
priority sectors of government and it was felt that this may restrict banks to
chare more from their customers and restrict their growth. An obvious priority
sector for the government was Agriculture. It was also considered and assumed
that agriculture being “weak” sector will result into more NPAs. So the
advocates of reform movements advocated against and were able to get banks
greater flexibility and autonomy in deciding what they did with the resources
they mobilized. However, the share of credit required to be lent to sectors categorized
as priority remained at 40 per cent of total advances. This gave rise to the
notion that NPAs in the banking system have been rising because of the pressure
to stick with priority lending. Advocates of liberalization assume markets to
be efficient and allocate resources best and that deficient or inferior
economic outcomes are the result of policy measures such as subsidies to the
poor and priority sector lending.
from a number of features of the vulnerability of
India’s banks revealed in answers to parliamentary questions tabled in the
December 2013 session of Parliament.
The first (revealed in answer to parliamentary question no.
283 tabled in the Lok Sabha on December 6, 2013) was that between the periods
ending March 2011 and September 2013, the ratio of gross NPAs to gross advances
in public sector, old private sector and new private sector banks put together,
rose rather sharply from 2.4 per cent to 4.3 per cent (Chart 1). Further, an
overwhelmingly high share of the increase in absolute NPAs was on account of
NPAs in public sector banks. While the share of the public sector banks in the
increase in advances between end-March 2011 and end-September 2013 was 76 per
cent, their share in the increase in absolute NPAs was 96 per cent. The ratio
of gross NPAs to advances even declined in the case of the new private sector
banks. This seems to strengthen the view that it is the state-controlled public
sector that is the problem, requiring disinvestment in addition to financial
reform to correct it.
He further argues - Is
the use of the public sector banks to deliver more credit to agriculture and
the medium and small scale industries or to push priority sector lending in
general responsible for this tendency? The evidence says it is not. More than
80 per cent of the increase in the ratio of non-performing assets to advances
is on account of NPAs located in the non-priority sector. While there has been
some increase in NPAs in advances to agriculture and the MSMEs, these are small
in comparison (shown in the Chart below).
Was the problem the flexibility and autonomy given to public
sector banks managers under liberalisation that they were unable to handle?
Here too the answer seems to be no. One of the notable features of bank lending
has been the sharp increase in the share of advances directed to the
infrastructural sector. In fact (according to figures from answer to question
no 1584 tabled in the Lok Sabha on December 13, 2013), even in the short period
between March-end 2011 and September-end 2013 the share of lending to
infrastructure in the total advances of public sector, old private sector and
new private sector banks put together rose from 13.2 to 15.7 per cent.
Moreover, public sector banks account for as much as 86-88 per cent of the
advances of the three segments of domestic banking to the infrastructural area.
But he says –
On the other hand, there is evidence that many infrastructural
companies are not delivering the revenues and surpluses that they were expected
to yield resulting in defaults in payments of interest and amortisation due on
bank credits, leading to debt restructuring and subsequent default. As at the
end of March 2013, 23 per cent of all debt restructured under the corporate
debt restructuring (CDR) mechanism was to infrastructural projects.
So what is the problem here and what is the real reason and
the issues for rising share of non-performing loans in total advances. It was definitively
not this priority landing. The major problem was the landing to various capital
intensive projects which are more risky and more illiquid government wants to
promote private entry into the infrastructural area, either independently or
under the PPP framework, it has been pressurising the public banking system to
support that process. The result has been much higher public, when compared to
private, bank exposure to infrastructure.
 |
| Gross NPAs to advances by bank groups (source:The Hindu) |
 |
Public Sector NPAs by sector (per cent of gross advances) (source:The Hindu)
|
| TABLE B7 : BANK-WISE AND BANK GROUP-WISE GROSS NON-PERFORMING
ASSETS, GROSS ADVANCES AND GROSS NPA RATIO OF SCHEDULED COMMERCIAL BANKS - 2013 |
|||
| (Amount in `. Million) | |||
| Banks / Bank Groups | As on March 31, 2013 | ||
| Gross NPAs | Gross Advances | Gross
NPAs to Gross Advances Ratio (%) |
|
| (1) | (2) | (3) | |
| Public Sector Banks | |||
| State Bank of India | 511894 | 10785571 | 4.75 |
| State Bank of Bikaner & Jaipur | 21195 | 584737 | 3.62 |
| State Bank of Hyderabad | 31860 | 920231 | 3.46 |
| State Bank of Mysore | 20806 | 459805 | 4.53 |
| State Bank of Patiala | 24530 | 754598 | 3.25 |
| State Bank of Travancore | 17499 | 683885 | 2.56 |
| State Bank of India & its Associates | 627784 | 14188827 | 4.42 |
| Allahabad Bank | 51370 | 1309363 | 3.92 |
| Andhra Bank | 37145 | 1001378 | 3.71 |
| Bank of Baroda | 79826 | 3328113 | 2.40 |
| Bank of India | 87653 | 2929679 | 2.99 |
| Bank of Maharashtra | 11376 | 763972 | 1.49 |
| Canara Bank | 62602 | 2439358 | 2.57 |
| Central Bank of India | 84562 | 1762337 | 4.80 |
| Corporation Bank | 20482 | 1193540 | 1.72 |
| Dena Bank | 14525 | 664569 | 2.19 |
| Indian Bank | 35655 | 1071559 | 3.33 |
| Indian Overseas Bank | 66080 | 1643665 | 4.02 |
| Oriental Bank of Commerce | 41840 | 1301862 | 3.21 |
| Punjab & Sind Bank | 15369 | 518434 | 2.96 |
| Punjab National Bank | 134658 | 3152440 | 4.27 |
| Syndicate Bank | 29785 | 1494227 | 1.99 |
| UCO Bank | 71301 | 1315691 | 5.42 |
| Union Bank of India | 63138 | 2119111 | 2.98 |
| United Bank of India | 29638 | 697081 | 4.25 |
| Vijaya Bank | 15329 | 705135 | 2.17 |
| IDBI Bank Limited | 64500 | 2001347 | 3.22 |
| Nationalised Banks $ | 1016834 | 31412861 | 3.24 |
| Public Sector Banks | 1644618 | 45601688 | 3.61 |
| Notes : $ Includes IDBI Bank Ltd. | |||
| Source : Department of Banking Supervision, RBI. | |||
| TABLE B7 : BANK-WISE AND BANK GROUP-WISE GROSS NON-PERFORMING
ASSETS, GROSS ADVANCES AND GROSS NPA RATIO OF SCHEDULED COMMERCIAL BANKS - 2013 (Contd.) |
|||
| (Amount in `. Million) | |||
| Banks / Bank Groups | As on March 31, 2013 | ||
| Gross NPAs | Gross Advances | Gross
NPAs to Gross Advances Ratio (%) |
|
| (1) | (2) | (3) | |
| Private Sector Banks | |||
| Catholic Syrian Bank Ltd. | 2109 | 89760 | 2.35 |
| City Union Bank Ltd. | 1731 | 153429 | 1.13 |
| Dhanlaxmi Bank Ltd. | 3803 | 78963 | 4.82 |
| Federal Bank Ltd. | 15540 | 451946 | 3.44 |
| ING Vysya Bank Ltd. | 1214 | 318916 | 0.38 |
| Jammu & Kashmir Bank Ltd. | 6438 | 398537 | 1.62 |
| Karnataka Bank Ltd. | 6389 | 254165 | 2.51 |
| Karur Vysya Bank Ltd. | 2859 | 297059 | 0.96 |
| Lakshmi Vilas Bank Ltd. | 4599 | 118923 | 3.87 |
| Nainital Bank Ltd. | 673 | 21746 | 3.09 |
| Ratnakar Bank Ltd. | 259 | 63952 | 0.40 |
| South Indian Bank Ltd. | 4339 | 320140 | 1.36 |
| Tamilnad Mercantile Bank Ltd. | 2145 | 163661 | 1.31 |
| Old Private Sector Banks | 52098 | 2731197 | 1.91 |
| Axis Bank Ltd. | 23714 | 1989007 | 1.19 |
| Development Credit Bank Ltd | 2150 | 67530 | 3.18 |
| HDFC Bank Ltd. | 20481 | 2413061 | 0.85 |
| ICICI Bank Ltd. | 96078 | 2984164 | 3.22 |
| IndusInd Bank Ltd. | 4578 | 446416 | 1.03 |
| Kotak Mahindra Bank Ltd. | 7581 | 489186 | 1.55 |
| Yes Bank Ltd | 943 | 470869 | 0.20 |
| New Private Sector Banks | 155525 | 8860233 | 1.76 |
| Private Sector Banks | 207623 | 11591430 | 1.79 |
| Source : Department of Banking Supervision, RBI. | |||
| TABLE B7 : BANK-WISE AND BANK GROUP-WISE GROSS NON-PERFORMING
ASSETS, GROSS ADVANCES AND GROSS NPA RATIO OF SCHEDULED COMMERCIAL BANKS - 2013 (Concld.) |
|||
| (Amount in `. Million) | |||
| Banks / Bank Groups | As on March 31, 2013 | ||
| Gross NPAs | Gross Advances | Gross
NPAs to Gross Advances Ratio (%) |
|
| (1) | (2) | (3) | |
| Foreign Banks | |||
| AB Bank Ltd | 57 | 638 | 8.93 |
| Abu Dhabi Commercial Bank Ltd. | 0 | 5199 | 0.00 |
| American Express Banking Corp. | 446 | 17230 | 2.59 |
| Antwerp Diamond Bank | 503 | 8106 | 6.21 |
| Australia and New Zealand Banking Group Ltd. | 281 | 24048 | 1.17 |
| BNP Paribas | 163 | 77536 | 0.21 |
| Bank of America | 0 | 76230 | 0.00 |
| Bank of Bahrain & Kuwait | 523 | 7215 | 7.25 |
| Bank of Ceylon | 15 | 1014 | 1.48 |
| Bank of Nova Scotia | 579 | 77890 | 0.74 |
| Barclays Bank | 5543 | 88793 | 6.24 |
| China Trust Commercial Bank | 522 | 3019 | 17.29 |
| Citibank N.A. | 13587 | 526288 | 2.58 |
| Commonwealth Bank of Australia | 0 | 1652 | 0.00 |
| Credit Agricole Bank | 6 | 24048 | 0.02 |
| Credit Suisse | 0 | 4550 | 0.00 |
| DBS Bank Ltd. | 5820 | 141111 | 4.12 |
| Deutsche Bank | 1544 | 224999 | 0.69 |
| FirstRand Bank | 237 | 2831 | 8.37 |
| Hongkong & Shanghai Banking Corporation Ltd. | 6408 | 362305 | 1.77 |
| HSBC Oman S.A.O.G | 0 | 51 | 0.00 |
| Industrial and Commercial Bank of China | 0 | 3372 | 0.00 |
| JP Morgan Chase Bank | 244 | 53689 | 0.45 |
| JSC VTB Bank | 0 | 885 | 0.00 |
| Krung Thai Bank | 0 | 160 | 0.00 |
| Mashreq Bank | 0 | 547 | 0.00 |
| Mizuho Corporate Bank Ltd. | 1253 | 55565 | 2.26 |
| National Australia Bank | 0 | 1636 | 0.00 |
| Rabobank International | 0 | 5899 | 0.00 |
| Sberbank | 0 | 370 | 0.00 |
| Shinhan Bank | 0 | 12062 | 0.00 |
| Societe Generale | 7 | 17576 | 0.04 |
| Sonali Bank Ltd | 15 | 199 | 7.54 |
| Standard Chartered Bank | 38801 | 648317 | 5.98 |
| State Bank of Mauritius Ltd. | 350 | 8380 | 4.18 |
| The Bank of Tokyo - Mitsubishi UFJ, Ltd. | 0 | 68395 | 0.00 |
| The Royal Bank of Scotland | 2796 | 127770 | 2.19 |
| UBS AG | 0 | 9741 | 0.00 |
| United Overseas Bank Limited | 0 | 358 | 0.00 |
| Foreign Banks | 79700 | 2689674 | 2.96 |
| All Scheduled Commercial Banks | 1931941 | 59882792 | 3.23 |
| Source : Department of Banking Supervision, RBI. | |||
