The NPA saga is not yet over. Bad loans are piling up.
The 25 Banks that have released results, have increased their Gross NPA by 81.18% and Net NPA by 95.79% from March 2015.
On a quarterly basis 25 Banks put together have increased their Gross NPA by 32.36% and Net NPA by 36.72% from Dec 2015.
Gross NPAs = the loans that are 3 months (or more) delayed in principal or interest, as a percentage of all loans.
Net NPAs = Gross NPAs minus provisions, as a percentage of all loans (minus the loans already provisioned for). While calculating Net NPAs the banks can reduce any amount already collected (like if they had shares as collateral, how much ever they recovered from that etc).
You can also read our previous post on bad loans of banks.
The major problem areas being the loans given to Iron and Steel Sector, Energy and Textiles.
The two charts below represent the Gross NPA and Net NPA percentages.
To view the details of the NPA in Indian banks please click here.
To add to the NPA woes of the bank, the Punjab government has apparently asked banks to waive off Rs 5000 Cr out of the Rs 20000 Cr loan taken. The loan was taken for the procurement of food grains, and FCI was to refund the money – but FCI has not found the food grains that were purchased, so they won’t pay . The Reserve bank have already ordered the banks to provision 15% of loans given to the Punjab government for this.
The consortium of banks led by State Bank of India are reluctant to add more NPAs to their books, and in turn Punjab government has asked the banks to convert the loans to 20 year bonds with a coupon rate of 7% (which is less than banks lending rate of 8%). The banks are unwilling to take the waive off, but are willing to issue the bonds if the coupon rate is increased. If the provisioning would have taken place then it would have been in two quarters with 15% and 10% each, but the banks have stood firm on their ground and are willing to schedule a meeting to renegotiate the coupon rate.
Regardless, this is a hit to banks, and will have to reflect appropriately on the books. This is now additional provisioning that may be required once these negotiations are done.
NPAs, Bad Loans and Provisioning aren’t yet behind us. With RBI giving FY17 as the year that banks have to recognize the really bad stuff, we expect more quarters of pain.
Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion.