NPAs rising at worrying pace
This is yet another proof of banks facing worsening bad loans situation. The addition to bad loans is now higher than recoveries made from defaulted loans, a reversal of the trend of previous few years when bad loan recoveries exceeded fresh slippages.
In 2007-08, fresh bad loans constituted 61 per cent of total NPAs, up from 37 per cent in 2003-04, 34 per cent in 2004-05, 41 per cent in 2005-06 and 52 per cent in 2006-07, according to a report by Dun & Bradstreet titled “India’s Top Banks 2009”.
“The movement of NPAs prior to 2006-07 was favourable as the ratio of addition to NPAs was lower than their recovery. Both these ratios were almost the same in financial year 2007,” said the report.
The start of 2007-08 was marked with a period of high interest rate regime in order to control the excess liquidity and control inflation. Furthermore, to make matters worse, the down phase in the business cycle in recent months has raised the odds of credit default.
In its third edition now, the survey captures developments in the banking sector and profiles the scheduled commercial banks in India. This year, the 77 banks surveyed, together reported 23.1 per cent growth in deposits while advances and assets grew by 25 per cent each.
“During FY08 the total asset base of these 77 banks was equivalent to 91.8 per cent of India’s GDP at current market prices,” said the survey which listed Bank of India as the best performing bank in the public sector, while Axis Bank was listed as the best private sector bank. The survey also stated that during FY08 there was an increase in structuring of both corporate as well as non-corporate debt.
“The total amount of loans restructured went up by 61 per cent for public sector banks and more than doubled for the private sector and foreign banks,” the survey said, adding that the total amount of loans restructured by foreign banks was at Rs 1,632 million in FY08 compared with Rs 578.8 million in last financial year.