NPA Rises: Banks to be Cautious in Extending Loans to Real Estate, Retail

Banks’ non-performing assets have shot up nearly 30% at the end of calendar 2009 from a year ago due to stress in many sectors and farm loan waiver, indicating sharply lower profits for banks and possibility of curbs on exposure to sectors that have contributed to the bad assets. In a reply to the Rajya Sabha, the government said the overall NPAs have increased to Rs 80,023 crore at the end of December 2009 from Rs 61,647crore at the end of December 2008, an increase of over 30%. “Banks will be more cautious towards lending to sectors such as real estate, exports and even retail loans,” says a senior banker with a private bank. A number of private banks have already curtailed their retail lending, specially personal loans.

A recent report by Fitch ratings on ‘banks’ restructuring loan portfolio’ pointed that restructured bank loans worth Rs 30,675 crore may turn bad in 2010-11 and further push up banks’ gross non-performing assets (NPAs) on an average by one percentage point. State-owned banks, however, feel that the rising NPAs will not impact their profitability and that NPAs are minuscule as compared to the total advances. “If you look at our figures, the gross NPAs are at 1.8% of our total advances. Besides, all banks have been making provisions for these loans, which have been reflected in third quarterly results. There will be some caution but it’s not over-exercised,” said CGM Punjab National Bank, RIS Sidhu. The bank reported a flat 1% increase in the net profit to Rs 1011.31 crore for the third quarter of this financial year.

Country’s largest lender, State Bank of India (SBI) also feels that increase in NPAs would not result in lending curbs. “There are no indications that loans to a particular sector has totally gone bad. Every sector has reported bad assets and there seems no reason to stop lending to any particular sector,” said chief financial officer SBI, SS Ranjan. Incidentally, the gross NPAs to gross advances for the public sector banks has also shown an increase of 0.27% as compared with last year. In a move that could put more pressure on PSBs, the government has allowed an extension for loan repayments to large farmers under the Agricultural Debt Waiver and Debt Relief Scheme. The total amount under the one time settlement (OTS) for large farmers is estimated at Rs 10,000 crore.