Private banks manage bad loans better than public lenders

Private sector banks were able to manage bad loans or non-performing assets (NPAs) better than the public sector lenders in the previous financial year 2012-13. Does this mean that private banks are more efficient in credit and risk assessment? Sachin Kumar finds out.

Private sector banks were able to manage bad loans or non-performing assets (NPAs) better than the public sector lenders in the previous financial year 2012-13. Does this mean that private banks are more efficient in credit and risk assessment?

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“Its not that private banks take less risks than public banks. They take more risks but they have better risk-management system,”said Saswata Guha, director, Fitch Ratings. “The culture, systems and processes relating to risk management is strong in private banks.” He added that the public sector banks need to strengthen their risk management system.

However, experts say that the rise in bad loans or NPAs in case of public banks should be seen in the context of their contribution in rural lending. “Public sector banks play a crucial role in the government’s agenda of financial inclusion and uplifting people in rural areas,” said Kajal Gandhi, banking analyst, ICICI Direct.com. “Lending for rural objectives expose banks to a high risk of loans turning bad.”

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“In banking, it matters that how much importance is attached to risk management team and one can find that at private banks attach more value to risk management,” said a banking analyst.