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Loan Defaults are Rising: KC Chakravarty


Dr. K.C. Chakrabarty has a presentation on defaults, which tells you how the trend is changing – where defaults are becoming bigger and bigger as a part of the overall system. Here’s a few graphs, followed by the actual presentation.

NPAs, or Non Performing Assets, are essentially bad credit – that is, when people stop paying back their loans for at least 90 days.

The NPA trend is increasing:


This is the ratio of bad loans to total loans. The “Net” is simply the gross number minus whatever has been provisioned against the fear that nothing will be recovered, minus what has already been recovered, and minus any interest charged that might not be recovered (as in, they might only get the principal back).

Bank Groups: Public Sector Banks See Sharp Uptick in NPAs


PSB = Public Sector Banks (SBI, PNB Etc.).

OPB = Old Private Banks and NPB = New Private Banks (HDFC, Axis, ICICI etc).

FB = Foreign banks.

The best performer has been the new private banks, but that’s mostly because the GDP slowdown is first industrial, and most industrial loans are given by public sector and old private sector banks – much of the rest haven’t yet been impacted. (That’s my theory, at least)

Slippage Ratio Near All Time Highs


If you look at Slippage (which is the addition of new NPAs) and Recovery (which is what you have gotten out of old NPAs), then it tells you something about flow – if you’re adding at a lesser rate than recovering, you will not see major deterioriation. However, we are seeing 2.5 times as many NPAs added as being reduced.

And it’s not just Agriculture, it’s Industry.


While agriculture has a higher Gross NPA ratio, Industial exposure is greater.

The Full Presentation


I would not be long banks in the medium term (2 to 5 years) because the cycle could easily get worse. However, a fear of defaults might make banks much more attractive, especially old private sector banks, and some public sector banks.

  • The farm loan waiver in 2008 was INR 60000 Crores.This is a small amount compared to over a trillion rupees in loan defaults by the Corporate sector in about 13 years.The finance minister Raghuram Rajan has woken up to this menace and believes that a promoter does not have a divine right to continue in his role in spite of management deficiencies.If his loans are being restructured or they are a technical write off then it is time for the promoter to relinquish his position.Banks are encouraged not to indulge in technical writeoff’s as the position is now severe.

  • Nithesh says:

    Whether Credit Card non payment also included in the Non Performing Assets?
    But, they are very much clever sir.. I paid my ICICI EMI card payment fully. But, still they sending statement for the payment. I am receiving it in my home for some months. Every month they charging huge late payment fee also. Worst service by those banks.

  • Ravi says:

    If the loan provisions have a clause to convert outstanding default amounts to equity, this can be one way of ensuring promoters or majority stock holders are pushed out early enough and the board / stock exchange get alerted about the loan defaults. This will also prevent these companies from raising other debt to service the loan. The transfer of equity holding can be a kick-in provision (e.g. first event where it is marked as default) and at this time,a portion of the advance default (interest backlog) will provide an equivalent number of options to get the stock at a nominal price. It appears that a good chunk of the npa has elements of fraud inherent.
    – Ravi

  • Avinash says:

    How about charting the major load bearing banks’ stock price in each category bank vis a vis the npa graph for these years.

  • karthik.shashidhar says:

    What strikes me is that the Net NPAs (i.e. NPAs – provisioning) has ALWAYS been positive. What this indicates is that our banks have never provisioned enough. If provisioning has been adequate, Net NPAs should hover around zero – it can deviate sufficiently in both directions but should keep mean-reverting to zero.

  • Prakash says:

    Thanks for the statistics, i will be helpful for me…