NPAs RISE

The evidence is mounting that the bad debts of Indian banks are on the rise. Gross non-performing assets (NPA) as of December 2009 are up 27 per cent over the same time last year. Public sector banks have done worse than their private sector counterparts, and their gross NPAs have grown 40 per cent. Two-thirds of this has come, not surprisingly, from the State Bank of India. Its Chairman recently said that NPAs in the Bank and in the banking system will further rise in the coming days. The bad loans have grown partly because of the slowdown last year and partly because the Reserve Bank of India (RBI), in late 2008, allowed banks to go easy on collecting their dues. These birds have now come home to roost. The “restructured” loans constitute more than 5 per cent of the total advances.

It is not just public sector banks, even foreign and new generation private banks are facing rough weather. Also, bank balance sheets may not always reveal the true picture, especially on the profits and asset quality front. Many bankers are now being compelled to do balance sheet management rather than manage banks. However, the blame cannot be laid entirely on the bank managements. The Government and the RBI also need to share it. The question now is: as the economy recovers, how actively will the banks get their money back. Their performance in this matter has been patchy. Sometimes they have done well and at other times they have been lax. A great deal has depended not just on how good the management was but also on the sort of quiet political direction that the banks have been given at the time. This direct fallout of government ownership could well be in evidence again if the Finance Ministry decides to continue the stimulus by, as it were, other means.

The UPA generally, and the Congress in particular, have not established a shining track record of observing tight banking norms. The Congress has tended to treat the government ownership of shares as ownership of deposits also. There is a distinct danger that it might do so again — as indeed it did with the loan waiver of Rs 60,000 crore last year to farmers. So investors have to be careful. One simple way they can bring about pressure on the Government not to play ducks-and-drakes is to sell PSU bank shares. In fact, going by the market response, it looks as if that process has already started.

Source: http://www.thehindubusinessline.com/2010/02/01/stories/2010020150290800.htm