PSBs outperform their private competitors in loan recovery

Public sector banks (PSBs) since the last nine successive quarters have been performing much better than their competitors in the private sector. The PSBs net non-performing assets (NPAs) have been lower as a percentage of advances. They have even beaten their competitors in the recovery of loans.

The PSBs registered average net NPAs as a percentage of advances at 0.88% while the NPAs of private banks stood at 1.11%. As per the Sunday ET analysis of the banks present in the banking index of the, the Bankex private banks NPAs figure is much above the overall industry average of 0.98% by the quarter ending June, 2009. As per the figures for FY09 the net NPA of the industry has increased by 25% to Rs 21,848 crore.

According to FY09 figures private banks have net NPA amount to Rs 6,310 crore and the rest of the amount of Rs 15,538 crore is of public sector banks. The Kotak Mahindra Bank and ICICI bank, among the private banks had the highest net NPAs as a percentage of their advances amounted at 3.07% and 2.33%, respectively.

In contrast to this none of the PSBs NPA level is more than 2%. Few of the PSBs banks such as SBI, Indian Overseas Bank, IDBI Bank and Canara Bank have a little more than 1% of net NPA of their respective advances.

While all other PSBs listed in the index - Allahabad Bank, Oriental Bank of Commerce, Bank of India, Union Bank of India, Bank of Baroda and National Bank are having net NPA level of less than 1% of their respective advances. A loan is classified as NPA if the payments have not been made for a certain period of time generally for two consecutive quarters.

However the NPAs of the private sector banks in absolute terms stood relatively less as they had low advances. But then also the private sector banks saw a faster growth in their NPA. In FY09 their net NPAs increased by 32% from Rs 4,763 cr a year ago. In the preceding year also their net NPAs doubled. Even the public sector NPAs grew by about 23% for FY09.

The ICICI Bank and HDFC Bank are having the highest NPAs since they have large lending base. In case of PSBs, SBI is leading due to same reason. The UCO Bank CMD SK Goel pointed out the private banks do aggressive retail lending therefore, there is high possibility of loan turning into NPA is more.

Moreover the private banks have more dealing in the NPA-prone credit card businesses. On the other hand the PSBs do not have much exposure of retail loans lending. According to executive director at Bank of Rajasthan KK Sharma it is mainly concerned with the base effect.

As the private banks have lower base thus the NPA figures are higher in percentage terms. As per the RBI guidelines last year banks restructured their loans having dues for payment. Therefore the banks were saved having larger base of bad loans.