It might surprise you, but new-age private banks and foreign banks, despite their claims of high technology, prudent practices and customer service, have fared badly in solid business parameters like non-performing assets (NPAs) – a reference to loans that go bad or stop yielding interest.
According to the Reserve Bank of India’s report on ‘Trends and Progress of Banking in India 2007-2008,’ an increase in gross NPAs was more noticeable in respect of new private sector and foreign banks, thanks mainly to their exposure to vulnerable real estate and housing loans.
On the other hand, gross NPAs (in absolute terms) of nationalised banks and old private sector banks continued to decline during the year. However, the gross NPAs of State Bank group showed an increase, again on high exposure to home loans.
Notwithstanding an increase in gross NPAs of the banking sector, as a percentage of gross advances gross NPAs declined further to 2.3 per cent at end-March 2008 from 2.5 per cent a year ago. The NPA ratio (gross NPAs to gross advances) of new private sector banks increased significantly during the year, while that of foreign banks increased marginally.
The NPA ratios of all other bank groups declined.
The RBI report pointed that the level of NPAs in India has declined significantly in recent years. The improvement continued in 2007-08. At end-March 2008, net NPA level of 75 banks was less than 2 per cent, and only two banks had over 2 per cent.
During 2007-08, the gross NPAs, in absolute terms, however, increased by around 12 per cent, reversing the declining trend noticed since 2001-02. This was partly on account of the high credit growth during 2004-05 to 2006-07 and partly on account of hardening of interest rates.