Is the worst of NPAs over for private banks?

Moneylife Digital Team 08 May 2017

Economy & Nation

Gross non-performing assets (NPAs) of nine private banks increased to 3.91% in March 2017 from 1.93% in March 2015 against their total advances. However, during the quarters ended in December 2016 and March 2017, the ratio of gross-NPA to total advances have remained unchanged. Maintenance of this ratio in March 2017 gives an indication that the worst for NPAs for these banks is probably over, says a research report.

In the note, Credit Analysis & Research Ltd (Care Ratings) says, "The banks were supposed to clean up their balance sheets by March 2017. It seems that these private sector banks may have reached a stage where they have completed the process of recognising the non-performing assets. This can be observed from below chart where the ratio of Gross NPAs to total advances has remained unchanged at 3.91% during the period December 2016 to March 2017."

The banks considered by Care Ratings in its report include, Axis Bank Ltd, DCB Bank Ltd, HDFC Bank Ltd, ICICI Bank Ltd, IndusInd Bank Ltd, Kotak Mahindra Bank Ltd, The Federal Bank Ltd, The Lakshmi Vilas Bank Ltd, and Yes Bank Ltd.

All banks were to have completed cleaning up their books by March 2017. The idea is to trace patterns in their movement starting from this point to March 2017 to conjecture whether or not the ratio has plateaued out. The study, Care Ratings says, focuses on how NPAs have moved post Asset Quality Review (AQR) conducted by banks between August and March 2017. Under this framework banks were asked to recognize three kinds of loans, non-performing assets that they had not recognized, restructured loans and projects that did not commence at the time as per plans that were submitted to banks.

According to the study, during the quarters of December 2016 and March 2017, the ratio for percentage of gross NPAs declined for Axis Bank, Federal Bank and The Lakshmi Vilas Bank. "It declined very marginally for IndusInd Bank and ICICI Bank while the NPA ratio was maintained for HDFC Bank. YES Bank witnessed an increase in Gross NPAs from 0.85% of total advances to 1.52% during the same period. The same was the case for Kotak Mahindra Bank which increased by 17 bps while it rose by 4 bps for DCB," the report says.

Care Ratings says, overall gross NPAs of these nine banks increased to Rs78,991 crore in March 2017 from Rs 26,455 crore in March 2015, which is almost three times.

It says, "The gross NPAs of the nine private sector banks increased by around 66% from quarter end March 2015 to March 2016 and by 80% from March 2016 to March 2017. The highest jump in total NPAs was witnessed in the quarter ended September 2016 where it grew by around 105% compared to the same quarter last year. September and December were the two-quarters in FY17, when these banks had the highest incremental NPAs."

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