Gross NPAs of banks may jump to 11.5% by end of FY21: Care Rating

 The gross non-performing assets (NPAs) ratio of Indian banks is likely to be 11 to 11.5 per cent by end of current fiscal and they are likely to restructure 4 to 5 per cent of the overall bank credit outstanding, according to Care Rating.

Besides, the asset quality data post the COVID-19 lockdown is uncertain due to a developing regulatory scenario. Multiple stakeholder objectives and moratorium computation with various firms have varying ways of computing moratorium, said the rating agency.

The disruptions caused by coronavirus pandemic have further deteriorated the health of banking industry which was already reeling under severe stress for several years.

The GNPA ratio of scheduled commercial banks stood at 8.2 per cent in Q1 FY21 against 9.5 per cent in the same period of last year.

Care said the end of FY21 GNPA numbers will move significantly ahead from the 8.5 per cent level witnessed at the end of FY20 be moderated by the one-time restructuring scheme and ongoing write-offs.

The additions to GNPAs will primarily from loans under SMA-1 (special mention category) and SMA-2 categories which were under moratorium and not eligible for restructuring.

Also, banks may see stress coming from the lower-rated or stressed corporates as personal loans not eligible for the restructuring scheme and banking exposure to unsecured personal loans, said Care.

NPAs of public sector banks stand at Rs 7.27 trillion: Govt tells Lok Sabha

The government on Monday said the Non Performing Assets (NPAs) of Public Sector Banks (PSBs) stood at Rs 7.27 trillion as on September 30, 2019.

Union Minister of State for Finance Anurag Thakur also said in Lok Sabha that scheduled commercial banks and select financial institutions have reported frauds to the tune of Rs 1,13,374 crore in the first half of the current financial year.

Thakur said during Question Hour that as a result of transparent recognition of stressed assets as NPAs, gross NPAs of PSBs, as per RBI data on global operations, rose from Rs 2,79,016 crore as on March 31, 2015, to Rs 6,84,732 crore as on March 31, 2017 and Rs 8,95,601 crore as on March 31, 2018.

"As a result of Government's strategy of recognition, resolution, recapitalisation and reforms, have since declined by Rs 1,68,305 crore to Rs 7,27,296 crore as on September 30, 2019," he said.

The minister said systematic and comprehensive checking, including of legacy stock of NPAs of PSBs, for frauds under the framework has been taken note of by the Reserve Bank of India (RBI) in its Financial Stability Report of December 2019, where it has observed that this has helped unearth frauds perpetrated over a number of years.

This is reflected in the increased amount involved in frauds of Rs. 1 lakh and above, reported by Scheduled Commercial Banks and select financial institutions, from Rs 23,934 crore in the financial year (FY) 2016-17 to Rs 41,167 crore in FY2017-18, Rs 71,543 crore in FY2018-19, and Rs 1,13,374 crore in the first half of the current financial year, he said.

Slowdown, credit squeeze to increase NPA, but banks more resilient now: RBI

After witnessing a fall in the gross non-performing assets (NPAs) ratio in March 2019 — the first time in seven years — Indian banks’ GNPA ratio is set to rise again, as a slowing economy and shrinking credit make the share of bad debt in the loan book larger, according to the half-yearly Financial Stability Report (FSR), released by the Reserve Bank of India (RBI) on Friday.

The system has, however, become better in terms of resilience since since March, the reference point used by the last FSR, thanks to the recapitalisation by the government and measures taken by the central bank, the latest report said, adding that the collapse of any large housing finance company won’t pose as big a risk as it had six months ago.

The gross NPA ratio of banks may increase from 9.3 per cent in September 2019 to 9.9 per cent by September 2020 “primarily due to changes in the macroeconomic scenario, a marginal increase in slippages, and the denominator effect of declining credit growth”, it said.

The report is prepared by the sub-committee of the Financial Stability and Development Council (FSDC) and is released by the RBI. Earlier this week, the Trend and Progress Report had said “further improvements in the banking sector hinge around a reversal in macroeconomic conditions”.

Risks posed by geopolitical uncertainties remain an overhang for the overall financial system. Exports might suffer, but the current account deficit would remain under control, the report said. “Reviving the twin engines of consumption and investment while being vigilant about spillovers from global financial markets remains a critical challenge,” the FSR said.

Aggregate demand slackened in the second quarter of 2019-20, further extending the growth deceleration. Writing the foreword of the report, RBI Governor Shaktikanta Das said the challenge was to “ensure transmission of monetary policy impulses to the advantage of real economies and not to aid build-up of froth in financial markets. We need to be mindful of the ‘cobra effect’ ”.

Slowdown, credit squeeze to increase NPA, but banks more resilient now: RBICobra effect refers to the situation when a solution to a problem makes the problem worse. On its part, the RBI has endeavoured to provide a responsive and proactive monetary policy in an economic environment wherein sources of vulnerabilities are continuously interacting, Das said, reemphasising the importance of good corporate governance across the board, which, according to the governor, “is the most significant factor that can lift the efficiency of our economy to its full potential”.

While the banking sector shows signs of stabilisation, PSBs should improve their performance and should build buffers against disproportionate operational risk losses, while “private sector banking space also needs to focus on aspects of corporate governance,” the governor said.

The market is becoming more discerning on prudential concerns around NBFCs, which continue to show signs of restructuring of their underlying business models, according to the RBI governor.

Credit growth of banks was 8.7 per cent year-on-year in September, while deposits grew 10.2 per cent. This is the first time since Q2FY17 that credit growth fell short of deposit growth, the report observed. Credit fell ‘across the board’ for commercial sector. However, private sector banks registered credit growth of 16.5 per cent.

While the GNPA ratio remained unchanged at 9.3 per cent between March and September 2019, the provision coverage ratio (PCR) of the banking system rose to 61.5 per cent in September 2019 from 60.5 per cent in March 2019 “implying increased resilience of the banking sector”, the report said.

Bilateral exposures between entities in the financial system witnessed marginal decline. Private sector banks saw the highest YoY growth in their payables to the financial system, while insurance companies recorded the highest YoY growth in their receivables from the financial system. The size of the inter-bank market continued to shrink with inter-bank assets amounting to less than 4 per cent of the total banking sector assets as at end-September 2019, the report said. This reduction, along with better capitalisation of public sector banks reduced the contagion risk under various scenario compared with March 2019.

Still, banks may have the capital adequacy ratio below the minimum regulatory level of 9 per cent by September 2020 without considering any further planned recapitalisation, the report said. If the macroeconomic conditions deteriorate, five banks might record the capital adequacy ratio of below 9 per cent under a severe stress scenario.

However, the report said 49 of the 52 banks would remain resilient for meeting day-to-day liquidity requirements in case of sudden and unexpected withdrawals of around 10 per cent of the deposits and utilisation of 75 per cent of the credit lines.

The RBI’s latest systemic risk survey (SRS) showed that all the major risk groups, such as global risks, risk perceptions on macroeconomic conditions, financial market risks and institutional positions were perceived as medium risks affecting the financial system. But the “perception of domestic growth risk, fiscal risk, corporate sector risk and banks’ asset quality risk increased between the earlier survey (April 2019) and the current survey.”

The survey participants felt that resolution of the legacy bad assets under the IBC was essential to enable the banking system to support the aspirations of economic growth.

According to another set of survey of 13 banks with regard to assets that were initially assigned to be resolved through the prudential framework (as of June 30), an inter-creditor agreement is yet to be signed for exposures amounting to Rs 33,610 crore while the same has been signed with respect to aggregate exposures of Rs 96,075 crore. However, resolution plan has been implemented only with respect to one borrower with a reported exposure of Rs 1,617 crore.

Mutual funds were the largest net providers of funds to the financial system. Their gross receivables were around Rs 9.40 trillion, or around 37.8 per cent of their average assets under management (AUM) as on September 2019, and their gross payables were around Rs 57,355 crore as at end-September 2019. The top-three recipients of their funds were banks followed by NBFCs and HFCs.

Cashiers, peon among those penalised for bank NPAs in FY18, reveals RTI

Responding to a question in the Lok Sabha on public-sector banks’ (PSBs’) declining profits, the then finance minister Arun Jaitley had said in December 2018 that 6,049 PSB officials had been penalised for rising non-performing assets (NPAs) in 2017-18. However, not all of these employees were managers — some were single-window operators, cashiers, even a peon— show data obtained through right to information (RTI) applications.

State-owned banks account for around 90 per cent of the combined NPAs of the country’s scheduled commercial banks.

Jaitley had said: “Depending on the gravity of their lapses, minor or major penalty has been imposed on erring officials, including, inter-alia dismissal, removal from service, compulsory retirement, reduction to a lower grade, reduction to a lower stage in time, scale of pay, etc. In all the cases, depending on the amount involved, the Central Bureau of Investigation (CBI) or police complaints have been lodged.”

In July this year, current finance minister Nirmala Sitharaman informed the Lok Sabha that 41,360 bank employees had been held responsible for NPAs in the past five financial years.

Recently, replies to RTI applications filed by transparency activist Venkatesh Nayak — reviewed by Business Standard — gave details of employees penalised in FY18 along with their designation, branch, and the nature of the penalty imposed on them.

They revealed that most of those penalised were managers across different scales, with the highest being Scale 7 (General Manager), and the lowest Scale 1 (Officer). The list for at least one bank, Oriental Bank of Commerce, however, showed that 17 single-window operators (SWOs), five head cashiers, two clerks, one clerk-cum-cashier and one peon-cum-housekeeper were also among those penalised for staff delinquency. The penalties imposed on these employees had the same severity as those imposed on managerial staff — withholding of increment, demotion to a lower stage for one year, and censure under provisions of bipartite settlement.

No PSB chairman, director, deputy director or managing director was penalised, as these executives do not come under the purview of staff disciplinary rules and are, therefore, exempt. However, there is a possibility that cases might have been lodged against such executives separately, information of which was not given by most banks.

Of the 21 PSBs, 15, including State Bank of India (SBI) and Punjab National Bank (PNB), did not divulge data on staff delinquency. This was even as SBI and PNB had the highest number of employees against whom staff accountability had been fixed in the past five financial years — 8,035 and 4,488 employees, respectively.

No stressed MSME to be declared as NPA till March 31, 2020: FM Sitharaman

State-owned banks will not declare stressed small businesses as non-performing assets (NPAs) till March 31, 2020, said Finance Minister Nirmala Sitharaman on Thursday, listing more measures to lift up the economy by ensuring credit.

State-owned lenders will hold meetings with Non-Banking Financial Companies--or shadow banks--and new retail customers in 200 districts till September 29 to explore giving credit, she said at a press conference in Delhi.

Sitharaman was speaking after holding a review meeting with public sector banks (PSBs) to discuss various issues, including follow up on transmission of monetary policy rates.

The Reserve Bank of India (RBI) had earlier this month made it mandatory for banks to link all their fresh retail loans to an external benchmark effective October 1 and the central bank's repo rate being one such benchmark. Following the move, banks such as Punjab National Bank and Allahabad Bank announced linking their retail loans with the RBI's repo rate.

Sitharaman said the RBI had also issued a circular that provides for stressed loan accounts of micro, small and medium enterprises (MSMEs) not being declared non-performing assets (NPAs).

She said banks have been asked to follow that circular.

NPAs under Modi's Mudra scheme doubled to Rs 9,204 cr in just 1 year: RTI

Public sector NPAs of loans issued under the scheme have increased by Rs 9,204.14 crore in just one year – from Rs 7,277.31 crore in March 2018 to Rs 16,481.45 crore in March 2019.

New Delhi: The non-performing assets (NPAs) under Prime Minister Narendra Modi’s ambitious Pradhan Mantri Mudra Yojana (PMMY) doubled within one year. This information was obtained through an RTI petition filed by The Wire.

In a written reply to the Rajya Sabha given on February 12, minister of state for finance Shiv Pratap Shukla wrote that as of March 31, 2018, the total value of NPAs held by public sector banks under PMMY was Rs 7,277.31 crore.

The RTI filed by The Wire reveals that as of March 31, 2019, the total value of NPAs from loans issued under the Micro Units Development and Refinance Agency Ltd. (MUDRA) stood at Rs 16,481.45 crore.

This means that public sector NPAs of the loans issued under the Mudra scheme have increased by Rs 9,204.14 crore in just one year.

Under the Mudra scheme, 30.57 lakh accounts have been declared as NPAs. According to an Indian Express report, as of March 31, 2018, the number of NPA accounts was 17.99 lakh. In just one year, the number of NPA accounts has increased by 12.58 lakh.

Although the value of NPAs is not very high in comparison to the total value of all loans issued under the Mudra scheme, it is nonetheless steadily increasing.

According to an IANS report published on January 13, the Reserve Bank of India had warned the finance ministry that the Mudra scheme could become a major contributor to NPAs.

According to the data obtained from the RTI, loans amounting to Rs 3.11 lakh crore in total were issued between April 1, 2018 and March 31, 2019. That means that the value of NPAs amounts to 2.89% of the total value of all loans.

According to an RBI circular, failure to pay 90 days after the last date for the payment of an installment leads to an account being declared as an NPA.

Harshit Agrawal, assistant manager of Mudra Ltd., said, “In case of national banks, this deadline is 90 days, while the deadline is 120 days for NBFCs and MFIs. These rules apply to all types of loans, Mudra or otherwise.”

A bank declares an account to be an NPA in case there are no payments of the due amount (for any given quarter) 90 days after the last date of the quarter.

Loan breakdown

Prime Minister Modi had launched PMMY in April 2015. The objective was to provide non-corporate and non-agricultural small businesses with loans up to Rs 10 lakh, which are called Mudra loans.

Mudra loans are divided into three categories: Shishu (loans up to Rs 50,000), Kishor (loans between Rs. 50,001 and Rs. 5 lakh), and Tarun (loans between Rs. 5,00,001 and Rs. 10 lakh). Between the years 2015-16 and 2018-19, loans amounting to Rs. 8.66 crore have been issued. In that duration, a total of 18.25 crore Mudra loans were approved and issued.

According to Mudra Ltd.’s statistics, as of now, Rs 3.05 lakh crore in Shishu loans, Rs 2.53 lakh crore in Kishor loans, and Rs 1.87 lakh crore in Tarun loans have been issued.

Mudra loans are provided by commercial banks, regional rural banks, small finance banks, co-operative banks, micro finance institutions (MFIs) and non-banking financial companies (NBFCs). The rate of interest depends on the bank, and the repayment period usually ranges between five and seven years.

According to a statement given in the Rajya Sabha on February 12, 2019, about 45% of the total sanctioned Mudra loans have been given to women. Members of scheduled castes (SCs) and scheduled tribes (ST), however, have received a very small share of the Mudra loans.

In all, 10.15% of the Mudra loans have given to SCs and 3.3% to STs.

According to another reply given in the Rajya Sabha on February 5, 2019, of all public-sector banks, the State Bank of India (SBI) has given the largest amount, Rs 83,621 crore, in Mudra loans (as of January 25, 2019).

After SBI, Canara Bank is second, having issued Rs. 27,704 crore in Mudra loans. Punjab National Bank has issued Rs 19,712 crore worth of Mudra loans. Twenty one public-sector banks have together issued Rs 2.74 lakh crore.

Information about NPA account-holders not provided

Although Mudra Ltd. provided details regarding the total NPA sum, it did not provide any information about the top 100 NPA accounts – like the names of the account holders, the total borrowed sum, interest rates etc. Mudra Ltd. said that it does not have this information.

An RTI was filed with the RBI as well, but the RBI said it does not have this information either.

This is significant in light of the fact that the Supreme Court recently reprimanded the RBI and directed the bank to provide information under the RTI Act regarding its annual reports and provide details of willful defaulters.

The RTI had also asked for information regarding what and how many bad loans had been written off, but Mudra Ltd. again said that it did not have this information.