Bad loans up by 55% of new private banks, public sector banks NPA goes down

According to the data available during 2006-07 the new generation private sector banks have slipped on the front of reducing non- performing assets (NPA). Though the banking sector have been working on in reducing non-performing assets (NPAs), or loans defaulted by borrowers. The Reserve Bank of India (RBI) has said gross NPAs of new private banks have shot up by 55 per cent to Rs 6,287 crore during the year as against Rs 4,052 crore in the previous year, reversing the declining trend in the last four years.

The public sector banks, which were famous in building up NPAs in the 1990s, have managed to bring down bad loans further — from Rs 41,358 crore during the year 2006 to Rs 38,968 crore in 2007. There has been 40 per cent decline from Rs 64,812 crore in 2004. The total NPAs of all commercial banks fell from Rs 51,097 crore to Rs 50,487 crore in 2007.

RBI in its Report on Trend and Progress of Banking in India said, “The asset quality of new private sector banks, though comfortable, showed some signs of weakening.” Same is the case with foreign banks operating in India, with their gross NPAs rising from Rs 1,928 crore in 2006 to Rs 2,263 crore in 2007.

Though, old generation private banks have managed to bring down their NPAs from Rs 3,759 crore to Rs 2,969 crore in 2007. According to the analyst, “Defaults in the retail segment seem to have added to the NPAs. One large private bank which was very active in retail lending contributed the maximum to NPAs.”

RBI said, during 2006-07 NPAs in the priority sector increased. It said, “This was mainly due to an increase in NPAs in the agriculture sector while NPAs in the small-scale sector declined. The NPAs in the public sector, too, increased during the year.”

Banks used SARFAESI Act and Debt Recovery Tribunals for recovery of bad loans and have been successful in the last four years in their plan. Besides, higher write-offs and sale of NPAs to asset reconstruction companies also aided banks in cutting NPAs. Though gross NPAs in absolute terms have declined, there has been increase in net NPAs, reflecting a higher write-back of excess provisioning than fresh provisioning made during the year.

In 2007 the ratio of gross NPAs to gross advances has improved considerably in the last six years — from 11.4 per cent in 2001 to 2.5 per cent. If we compare this with other countries the results are better. Argentina’s NPA-advances ratio improved from 13.1 per cent to 3.2 per cent, Korea from 3.4 to 0.8 per cent, Brazil from 5.6 per cent to four per cent, Japan from 8.4 per cent to 2.5 per cent, the UK from 2.6 per cent to 0.9 per cent and Australia from 0.6 per cent to 0.2 per cent.

Urban co-operative banks (UCBs) in India are still having high ratio of NPA-advances, at 17 per cent. Gross NPAs of UCBs fell marginally from Rs 13,506 crore in 2006 to Rs 13,363 crore in 2007.

Yes, there’s a housing loan slowdown

There has been slowdown in the housing loan segment this has been confirmed by the RBI. In 2006-07 the has been decline in the housing loans demand it has come down to 24.6 per cent at Rs 45,508 crore from 38.3 per cent at Rs 51,273 crore in the previous year, according to the central bank. The reasons behind the decline are the high interest rates and soaring real estate prices.