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NPA Management In Public Sector Banks

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Npa Management In Public Sector Banks

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By Pravin Palande/ Forbes India Indian banks hav e brought bad loans down to 2.4% ov er 1 0 y ears, but now they need to be careful The past three months hav e been tough for Indian banking. High interest rates and threats of a global recession hav e taken their toll on bank stocks. The NSE banking index fell 1 5% compared with the Nifty s 1 1 % slide in the state of health in the past 1 0 y ears.

Danendra Jain past three months. Indian banks, ironically , hav e nev er been in a better
manager

A recent study by Boston Consulting Group (BCG) found that bad loans fell from a peak of 1 1 .4% in 2001 to just 2.4% in 201 0, showing the efficiency of management of capital. In fact, Indian banks hav e been performing better in controlling defaults with only 0.6% of loans handed out last y ear turning sticky , compared to 1 % in the US and China. Indian banks also hav e a cost-to-income ratio of 47 %, which is lower than Germany , France and the US.

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NPA Management In Public Sector Banks

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Benefits of hiring a professional web designer What Does the 201 2 Budget Mean For Me? Other side of Democracy The main reason for the robustness was the banks focus on return on inv estment, cost-to-income ratios and the efficient use of technology . BCG ex pects that by 2025 the Indian banking sector will be the third largest in the world on assets, behind China and the US. But now stress signals are showing up. The Reserv e Bank of India ex pects non-performing assets (NPA) to inch up to 2.9% during 201 1 . IDFC Securities, a broking firm, recently said at least 1 7 % of loans are stressed and some could go bad. Total bank credit to the industrial sector stands at about Rs 1 7 ,60,600 crore. Credit to power and infrastructure sectors has grown 40% in the past four y ears and the proportion of the same has gone up to 1 4% in terms of total credit offtake, which has created additional risks to the banking segment, say s Ajay Parmar, head of institutional research at Emkay Global. State-owned banks hav e a higher allocation to small industries, which could get hurt early if there is an industrial slowdown. Additionally , the central banks battle with persistent inflation is raising the cost of money , pressuring net interest margins that are ex pected to continue to narrow for at least another two y ears. But no one is pressing the panic button y et because there is no dearth of liquidity in the sy stem. Say s Rajeev Thakkar, CEO, Parag Parikh Financial Adv isory Serv ices, If margins are high then NPAs are not a cause for concern... There is a difficulty in the sy stem but we are certainly not into recessionary territory . Money Supply in TOP Tax sy stem Co-pay terms eased for group health insura... Limited Paper Currency Health Insurance Y our safety policies My View on this article published on website of m oney control.com Main Sav ings Account v iew all>> I fully disagree with the conclusion arriv ed at by Forbes India. It is not true that due to tight m anagem ent banks has been able to control NPA during last one decade and absolutely false to say that banks hav e got success in bringing it down from 11% in 2001 to 2.8% in 2011. More from Finance blogs THE NO 2 SLOT RBI replete with bright ideas Best Job Searches in India Why hard driv e lose data and how to recov er Understanding Innov ation Tips and Tools to unhide non-sy stem files Chewing Ov er Gutka

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Bitter truth is that banks hav e fraudulently and in nex us with RBI and auditors hav e concealed all bad assets and concealed NPA during last ten y ears in the nam e of reform ation. Secondly they hav e reduced their ex posure in sm all segm ent and increased their focus and their ex posure on bulk lending. T his is why 7 0 to 80 to their total disbursem ent during last ten y ears are for big corporate and gov ernm ent com panies which help in reducing Gross NPA percentage.

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NPA Management In Public Sector Banks

I peeped into loan portfolio of one of gov ernm ent banks and found that loan outstanding in the nam e of top 500 borrowers is 50000 crores out of total loan portfolio of Rs.150000/ crores of the bank. It m eans loan shown to be disbursed to priority sector is inflated by including bulk loan and obv iously the bank is falsely claim ing that the bank is fulfilling RBI target fix ed for v arious segm ents in priority sector.RBI is willfully silent spectator of all frauds com m itted by chief of v arious banks.

Obv iously banks hav e controlled NPA ratio firstly by concealing bad assets and secondly by increasing bulk lending and neglecting sm all farm ers, sm all traders and sm all m anufacturers for which banks were nationalized in 1969.

If list of newly generated NPA of any bank is properly analy sed it will precipitate that account was in fact NPA long ago but banks willfully concealed the sam e and booked interest as incom e against RBI's prudential norm s for incom e recognition.

In this way banks not only inflated incom e but also sav ed prov ision to a great ex tent. Now when RBI has forced to declare NPA as per sy stem s top bankers are weeping and searching lam e ex cuses of global recession or bad weather or inflation or high interest rate.

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