A look at the NPAs in the Indian Banking Sector

Ok, I agree. When it comes to business news, I find Banking the most attractive segment. But then Banking is the backbone of any financial system. So today when I came across an article on Bank NPAs (Economic Times - informative, must read), decided to take a good look at it.

Source: RBI website (Link: Statistical Tables Relating to Banks in India). Note: Net NPA is Gross NPA less Provisions

The chart above (available only upto 31.03.14) indicates that NPAs have risen by over 36% from 2013 to 2014. Current estimates indicate a figure of 3.1 lac crores, which is an increase of about 17%. Statistically, the NPA growth rate seems to have halved. But these do not include re-structured assets. There is also the early warning indicator category of Special Mention loans (see box), that are not reported by Banks. As per an ICRA report this year, Indian Banks' NPA rate will remain high at about 4% of all advances, 9-10% if we include restructured loans.

That is a good cause for worry, even the Finance Minister agrees with the RBI on this. RBI is investigating a few NPA cases with help from independent audit firms, to check if there has been any laxity on the part of banks in handing out loans. The Debt Recovery Tribunal which was formed for speedy recovery in such cases, is stuck with insufficient manpower and infrastructure. As of 2014, it has 59,645 pending cases worth Rs.3.75 lac crores (Source: Dept. of Financial Services). The Finance Ministry and RBI have stated that bringing down NPAs is one of their major concerns, but seems like the road is long and hard, with many promises to keep, and miles to go before we meet the Basel III norms. {Robert Frost, please forgive me :-P}

Related News links:
Banks see a rise in delayed payments
Jaitley is right, bank NPAs are unacceptably high
Deloitte, KPMG, EY helping RBI in investigation of NPA cases
Raghuram Rajan warns of action against banks hiding true NPA numbers
Pending cases pile up at debt recovery tribunals