Your savings in trouble as public banks run out of money

Called gross Non Performing Assets, these non-recoverable loans of certain banks, are nearing 100 percent

Just last week, RBI governor Raghuram Rajan exhorted on the proclivity of Indian laws to punish the weak and spare the rich. Data with dna shows that behind Rajan’s strong words is a growing concern about the non-recoverable loans doled out to big corporate houses. Called gross Non Performing Assets, these non-recoverable loans, of certain banks are nearing 100 percent. While a clutch of big corporate houses have been reluctant to repay these loans, banks have been feeble in their response in getting big business houses to pay back their debts. This is what prompted Rajan to tell RBI employees on January 17, “No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop” 

Finance ministry data with dna shows that Bank of India’s bad debts have crossed 112 percent level followed by Bank of Baroda with 82 % in a year on September 2015. Similarly, Bank of Maharashtra's NPAs stands at 84 percent growth rate in same period.

The average public sector banks Gross NPAs growth is more than 25 percent.

Alarming Gross NPAs

Banks’ NPAs are calculated at two levels - Gross NPAs and Net NPAs. The gross NPAs is the total loan of banks which is not recoverable.

Suppose, a bank has lent Rs 1,000 Cr to a company and the company has only been able to pay Rs 300 Cr and stop the check for rest of 700 Cr. If the company is not able to pay rest of instalments within next 90 days, the bank flags that account as bad loan or NPAs. Banks’ Risk management team becomes active and set aside some extra amount to prevent emergency losses like banks depositors’ money erosion. In Banking, this term is known as ‘provision’.

If provisioning amount is Rs 200 Cr then Gross NPAs is 700 Cr and net NPAs will be 500 Cr (700-200).

Finance ministry data shows that public sector banks have lost more than 19 percent of net profitability. Banks are in hot water and badly in need of more than Rs five lakh Crore. The Government has pumped in Rs 19,950 crore to help out the ailing banks. None of the banks responded to emails wrote to get their replies.

Profit Vs Responsibility

A top finance ministry source says, “RBI and Government are playing a calculative game with public funded banks. Public Sector Banks are on similar path like Air India and MTNL”.
In 2008 when industry had faced tough time to get loan, government had decided to revise credit target of public banks. A finance ministry letter to RBI has mentioned that “the absolute credit growth target for the public sector banks for 2008-09 which set at Rs 3,59,139 Crore (growth of 19.8%) enhanced to Rs 4,41,917 Cr in January 2009. “Actual credit outstanding as on march 31, 2009 was to reach 22,31,580 Cr ore, 2.9% over actual credit outstanding as on March 31, 2008”.

After 2008 crisis RBI has allowed liberal restructuring of loans (low interest and tenure as well as other term and conditions) to improve India's economic scenario. Internal communications between Finance Ministry with RBI have revealed that Ministry officials were asked to examine the different approach of financing by public banks (higher exposure to infrastructure and manufacturing and term loan financing) vis-à-vis the approach of financing by private sector banks (more emphasis on retail loans and cash credit and general reluctance to exposure to infrastructure and government sponsored schemes).

"This high growth of NPAs is reflective of number of aspects. It can be due to bad appraisal,weak monitoring and possible diversion of funds in a huge manner by the borrower" says Amarjeet Chopra, Chairman of National Advisory Committee on Accounting Standards (NACAS).

Name of the Bank	Gross NPAs in %	Impaired Asset in %	Net Profit in %
Bank of India	112	37	-37
Bank of Baroda	82	31	-52
Bank of Maharashtra	84	48	-53
Canara Bank	53	24	-29

 

 -DNA India