Banks Have Ability To Withstand Stress: Also Read

Banks have ability to withstand stress
BS Reporter / Mumbai March 26, 2010, 0:31 IST
The Reserve Bank of India (RBI) today said the banking sector was in a position to withstand asset quality stress even if loans under restructured accounts became non-
performing.
Following the global financial crisis, Indian banks were allowed, as a one-time measure, to restructure loans without classifying these accounts as sub-standard. The
restructured accounts in the standard category constituted 3.1 per cent of the gross advances as on December 2009. “Stress tests indicate that the banking sector is
comfortably resilient and, even if, in the worst-case scenario, it is assumed that all restructured standard advances become NPAs (non-performing assets), the stress will
not be significant,” the central bank said in its Financial Stability report.
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Although the stress tests result indicates that the impact on banks, following an unexpected rise in credit defaults, is not very significant, the central bank said there is a
need to monitor the situation closely to identify any incipient signs of stress building up in the system.
In October 2009, RBI mandated banks to reach the provisioning coverage ratio of 70 per cent by September this year.
The stress tests result revealed that banks will be able to significantly withstand the impact of increased provisioning coverage norms of 70 per cent under a relatively
adverse scenario. Though the banking system showed resilience to credit and interest rate shocks, the liquidity scenario could pose some potential threats, said the
report.
“The liquidity stress tests result show that some banks face liquidity constraints under stress scenarios. Even though the scenarios have very stringent assumptions,
nevertheless, the result of the stress tests suggest that banks need to continuously monitor their contingency liquidity plans while strengthening systems for managing the
liquidity risk,” the report said.
RBI has noted that banks are increasingly relying on volatile liabilities to support balance sheet growth.
The share of core deposits to total assets has also progressively declined over the years (except in the last two quarters of 2009). The regulator cautioned that over-
reliance on bulk deposits by certain banks could impact both cost and stability of their deposit base.
“Despite a high ratio of temporary assets to total assets, the coverage of liquid assets in relation to volatile liabilities has remained less than one, indicating a potential
liquidity problem,” RBI said. “However, as banks maintain a minimum of 25 per cent of their NDTL in SLR securities, it would be possible to raise additional liquidity when
required.”
Non-payment of restructured loans for the real estate and textiles sectors may lead to an increase in bad loans at commercial banks in the current
fiscal, financial services secretary R. Gopalan said on Sunday.
“Some of the restructured accounts in real estate and textile sectors are not performing the way we thought they would,“ Gopalan said on the
sidelines of an annual review meeting of regional rural banks.
“So I expect the gross NPAs (non-performing assets) of commercial banks to go up slightly more than (what) we expected this year,“ he added.
NPAs of commercial banks went up in the three months to June due to the same reason, he said.
Restructuring a loan in- volves reducing the rate of interest and giving the borrower more time to pay back. The government had to restructure
the loans of textiles and real estate sectors last year due to falling demand in export and domestic markets.
Gross NPAs of Indian banks increased to 2.5% of total loans by 31 March, up from 2.2% a year ago, according to a recent report by Standard and
Poor's (S&P) on the Indian banking sector.
S&P expects NPAs to peak at around 3% in the current fiscal. It also expects 25-50% of restructured loans to turn bad in the next two years.
It said sectors such as textiles, gems and jewellery, commercial real estate, transporta- tion, unsecured retail credit and metals are the most
vul- nerable.
“Slippages from restructured loans were 5-20% in the six months following the comple- tion of the restructuring exer- cise in June 2009,“ S&P said.
Gopalan ruled out further restructuring of loans in the current fiscal. “The restructuring was done due to the economic downturn. The slowdown
is over now.“
The aviation sector has also demanded that its loans be restructured.
“The aviation sector has gone to RBI (Reserve Bank of India) for a restructuring. RBI has authorized the Indian Banks' Association (IBA) to come up
with proposals on this issue. IBA is working on it.
RBI, being the regulator, will take a call,“ Gopalan said.
State Bank of India has ap- proached the banking regulator with a proposal to restructure the Rs2,000 crore in short- term debt of Kingfisher
Air- lines Ltd.
RBI has asked 13 of the country's top banks to frame a common policy for restructuring the debt of airlines to provide relief to the ailing aviation
sector, Mint reported on 13 July.
The move is likely to provide relief to debt-laden companies and help the country's three biggest carriers--Jet Airways (India) Ltd, Air India and
King- fisher Airlines--which togeth- er control 65% of domestic passenger traffic and have a combined debt of $13.5 billion (Rs63,450 crore).
Gopalan also said the rising NPAs won't affect credit growth. “Credit growth has been more than 20% this year.
I don't think it should be affected.“
Finance minister Pranab Mukherjee said, after a meeting with the chairmen of regional rural banks, that their employees will now have a pay
scale that corresponds with those of nationalized banks.
“The additional cost burden of the arrears is likely to be Rs791 crore. This is likely to lead to more RRBs (regional rural banks) going into losses
against only three loss-making RRBs at present,“ he said.
To enhance transparency in their operations, the Reserve Bank of India has asked banks to make
certain additional disclosures such as concentration of deposits and advances, sector-wise NPA (non-
performing assets) break-up, details of assets, NPAs and revenues arising from overseas operations,
and off-balance sheet SPVs (special purpose vehicles) sponsored by banks in the ‘Notes to accounts'
in their balance sheets.
Banks have to make these disclosures in their balance sheets from the year ending March 2010.
In a circular issued on Monday, the RBI asked banks to disclose details of the deposits garnered from
their top 20 depositors and the percentage of these deposits to total deposits. They will also have to
reveal similar information regarding their advances and exposures.
While revealing their NPAs, banks will have to specify sector-wise percentage of NPAs to total
advances. Now shareholders will know whether the bad loans are coming from the agriculture
sector, industry, services or the personal loans segment. They will need to specify their exposure to
the top four NPA accounts.
While most of the public sector banks do provide these details, private banks will also now have to
divulge this information.
Banks will have to provide details about their overseas assets, the revenue generated by these
assets and the total NPAs from the overseas operations. They will also have to disclose their off-
balance sheet domestic and overseas SPVs.
A senior public sector banker said the regulator has given too short a notice and data compilation to
make the disclosures could pose problems.
Information on Non Performing Assets in Banks
During 2008-09, and the year before, banks world over suffered from defaults in widespread
manner. Indian banks though not equally affected, had to bear the fall out of excessive retail loans in
housing/ auto sector in prev years. But the balance sheets of the Banks are always showing lesser &
lesser NPA ratios. It would be interesting to know, 1) the volume of additional outstanding loans
classified afresh as NPAs, in 2007-08, 08-09, April- Dec09, and the consequent reduction out of
them, separately, to know the net addition. From the reduction how much would be by way of
recovery, write off and restructuring respectively. This would give truer picture.
Secondly I would like to know how much of incremental loans have gone to SMEs each year since
last 10 years as compared to rise in Total advances, (both in terms of sanction & disbursements)
Would any one guide me whom to approach in this regard, RBI or IBA?
Kamal Chattopadhyay
The advantage of easing yields may be offset by lower interest income and rising bad loans.
Banks have heaved a sigh of relief on easing of bond yields at the close of financial year 2009-10.
While the burden of making provisions for erosion in the bond portfolio will be less now, profitability
will come under pressure due to subdued growth in interest income and increase in non-performing
assets (NPAs).
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The fourth quarter (Q4) saw a distinct improvement in credit pick-up. This is in keeping with the
economic turnaround. But, this will provide limited benefit in the form of an improvement in
interest income.
Lenders’ core business improved with the credit growth rate rising to 16.1 per cent (year-on-year as
on March 12).
Krishnan ASV, a banking analyst with Ambit Capital, said most banks were expected to report
subdued growth. Their core interest income growth is likely to be sluggish in January-March. Non-
interest income, including earnings, will also remain muted. Interest spread could contract by 10-15
basis points in the quarter over the third quarter ended December 2009. Two broking entities —
Angel Broking and Sharekhan — expect improvement in margins in the fourth quarter. Sharekhan, in
its preview of listed banking sector stocks, said, “We expect net interest margins (NIMs) to improve
by 5-15 basis points sequentially, driven by an improving credit-deposit (CD) ratio, due to a strong 5-
7 per cent sequential loan growth as well as a residual downward re-pricing of deposits.”
Motilal Oswal Securities said the lag impact of repricing of deposits at lower rates, strong current
account, savings account (Casa) growth and improving CD ratio would lead to a 5-10 basis points
expansion in margins.
The Sharehkan report noted treasury gains would remain muted. The bond market saw firm yields
and lesser volatility owing to the spike in inflation, fears of a rate hike and concern over the
government’s borrowing programme.
Consequently, the yield curve has shifted upwards and is less steep since the third quarter of 2009-
10. With yields moving northwards, most banks are likely to see lower treasury gains during the
quarter. Moreover, public sector banks may have to take a hit on their investment portfolio due to
marked-to-market (MTM) provisioning, which could adversely affect their bottom lines.
According to Motilal Oswal, losses on account of MTM will be limited despite a 15 basis points rise in
yield on the 10-year government bond. MTM provisions on the available-for-sale portfolio will be
limited, as a large part of it comprises liquid mutual funds and treasury bills.
Besides concern over MTM provisioning, slippages in advances, especially restructured accounts,
remain a weak spot. The Reserve Bank of India had allowed banks to restructure loans of viable units
which were facing temporary liquidity problems due to the economic downturn.
Although concerns over asset quality were receding, slippages from restructured portfolios remained
important metrics to monitor in the fourth quarter, said Angel Broking.
Defaults by small borrowers increasing NPA of banks
Press Trust of India / Jamshedpur March 27, 2010, 16:19 IST
Non-payment of loans by small borrowers has led to increase in volume of non-performing assets (NPA) in the banking sector, Executive Director of Bank of Baroda
(BOB), R K Bakshi said today.
Small borrowers taking loans from banks upto Rs 50,000 are not repaying them, citing non-viability of projects, business failure or crop failure. This has resulted in an
increase in the volume of NPA, Bakshi told newsmen here.
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district
On the other hand, he said, the performance of large industrial houses in loan repayment had improved in view of the industrial growth rate.
Claiming that the NPA ratio of BOB at 0.31 per cent was better than any other bank, Bakshi said the ratio was better also compared to any overseas bank benchmark.
He said the financial position of BOB, which has capital adequacy of 14.5 per cent, was strong and was expected to touch Rs four lakh crore business by March 31.
On a query about a hike in the interest rate, Bakshi hinted at the possibility after two or three months in view of the improving credit portfolio.
"We are expecting an increase in the interest rates after two or three months," he said.
Asked whether BOB had any plan to improve the credit ratio, he said though it would depend on the credit policy of Reserve Bank of India, which was likely to come out
with it next month, BOB was expecting an increase between 20 to 25 per cent credit growth.
Referring the credit-deposit ratio in Jharkhand, Bakshi said it was at 51.18 per cent compared to 43 per cent in the total banking sector.
Bakshi said BOB had plans to open 350 branches across the country including 11 in Jharkhand next year.
He said BOB would recruit 3,500 persons, including in the officer's grade, by December.
UBI in talks with ARCs to sell Rs 100 cr worth bad loans
Press Trust of India / Mumbai March 18, 2010, 12:09 IST
United Bank of India (UBI) is negotiating with a clutch of asset reconstruction companies (ARCs) to sell bad loans worth Rs 100 crore for cleaning up its loan book, a
senior bank official today said.
The bank plans to sell off Rs 100 crore of its bad loans by end-March and has already sold Rs 200 crore worth bad assets so far in this fiscal, UBI Executive Director T M
Bhasin told reporters at the bank's listing ceremony here.
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"We have received bids from ARCs to sell our bad assets. We are currently evaluating bids and expect to sell Rs 100 crore-worth bad loans by the end of this month," he
said.
The decision to sell off bad loans is part of restructuring the bank's advance portfolio and also reduce the non-performing assets (NPAs) burden, Bhasin said, without
outlining the segments which have incurred most of the losses.
Kolkata-based UBI has a gross NPA level of 2.4 per cent, while its net NPAs stands at 1.21 per cent. This is slightly higher than its peers.
United Bank currently has a loan book of Rs 43,000 crore, while its total deposit base stands at around Rs 67,000 crore. UBI today got listed on the Bombay Stock
Exchange with a 17 per cent premium at Rs 77 against an issue price of Rs 66 per share.
On NSE, the shares were listed at Rs 74.9, a premium of 13.48 per cent. With UBI going public, Punjab and Sindh Bank is the only unlisted public sector lender now.
Central Bank of India was the last PSU bank to get listed.
To purge their balance sheets by this fiscal-end, many banks either opted for one-time settlement of their defaulted advances or sold them off to ARCs.
NPA levels started rising in the system, particularly in the last one year, post the financial crisis that hit many businesses and resulted in job losses.
Top bankers, including State Bank of India Chairman, O P Bhatt had recently indicated that the slippages are likely to rise in the coming months and a substantial
economic recovery is yet to take place.
However, rating agency Crisil had recently said that the pace of rise of NPAs is likely to slow down in the approaching months as companies are now in a better position
to repay their loans.
The agency, which projected that gross NPAs in the system would grow to 5 per cent of the total assets by end-FY11 now expects the ratio to be around 4.5 per cent.
Banks try to clean books through settlements, NPA sales
Abhijit Lele / Mumbai March 17, 2010, 0:41 IST
With the financial year coming to a close, commercial banks have hastened work on sprucing the
health of balance sheets.
Many banks have floated one-time settlement (OTS) schemes for small and medium enterprises and
tring to sell non-performing assets (NPAs).
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15-20% in fourth quarter
State Bank of India, Corporation Bank, Karnataka Bank and Karur Vysya Bank have already floated an
OTS each. Many others are in the process of doing so.

TURNING BAD
Rs Crore Gross Non Net Non

Performing Performing
Assets Assets
Dec ‘08 55280.37 24550.19
Mar ‘09 59368.59 27107.51
Jun ‘09 61626.83 28065.95
Sep ‘09 65537.51 29337.79
Dec ‘09 70781.35 33166.27
Common Sample for 39 Listed bank (standalone

results)
Source
Capitaline
Bankers said while such efforts (OTS and NPA sale) are regular activity, the financial crisis and the
recent regulatory fiat for increasing the provision coverage ratio are also driving them. The global
financial crisis put a strain on corporate, small enterprises and retail borrowers, leading to
substantial addition to gross NPAs. Plus, the Reserve Bank of India mandated banks to attain a 70 per
cent loan loss coverage ratio by September 2010.
SBI chairman O P Bhatt said the bank would offer a settlement for bad loans to provide relief to small
firms hit by the financial crisis. "We have got a large number of units which are stressed...We are
trying to incentivise them with a one-time settlement," Bhatt said.
Karnataka Bank chief executive Jayarama Bhat said his bank did not intent to sell NPAs, but had
floated a one-time settlement scheme from which it expects to recover substantial amounts. This
would also help to reduce outstanding NPAs. Its gross NPAs rose to Rs 612.3 crore (4.5 per cent) in
December 2009 from Rs 451.2 crore (3.7 per cent) a year earlier.
Chennai-based Indian Overseas Bank has commenced sale of NPAs for Rs 954 crore, involving 61
accounts. Its gross NPAs rose in the 12 months ended December 2009 to Rs 3,218.3 crore as against
Rs 1,718.1 crore in December 2008.
IOB executive director Y L Madan said the due diligence by prospective buyers is through and bank
hopes to strike a deal soon. It would help to manage provision coverage.
Similarly, Federal Bank is in the market for sale of assets of about Rs 80 crore. Its chairman M
Venugopalan said, thebank was trying to sell some NPAs, “but is not in a hurry. It wants to get better
value for assets put on the block”. The outstanding gross NPAs of the Kerala-based private bank
stood at Rs 790.7 crore at the end of December 2009, up from Rs 625.7 crore a year earlier.
A Mumbai-based asset reconstruction company said many banks were in the market for a sale of
NPAs, but there was a gap between what value banks expect and the price ARCs are ready to offer.
Banks prefer cash deals, since the payments are immediate, which add to the revenues for the year,
as against securities which could take time to realise gains, based on resolution of NPAs. An SBI
official said his bank would not resort to large-scale sale of bad loans. Instead, it would do
continuous follow-up with borrowers to ensure better recovery than the income that could be
earned by offloading bad loans to other parties.
SBI, the country’s largest lender, saw a significant rise in its gross NPAs to Rs 18,861 crore at the end
of December 2009 from Rs 12,723 crore a year earlier.
NPAs to rise at a lower pace than before: Crisil
Press Trust of India / Mumbai March 15, 2010, 20:19 IST
Rating agency Crisil today said the pace of rise in banks' non-performing assets (NPAs) is likely to
slow down in months ahead as firms are now in a better position to repay their loans in a recovering
economy.
"NPAs may continue to rise but at a lower level than we expected six months ago," Crisil Chief
Executive Officer and Managing Director Roopa Kudva said.
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NPAs refer to loans that run the risk of default. Once the borrower has failed to make interest or
principal payments for a period of time fixed by banks, the loan is considered to be a non-performing
asset.
Last year, the rating agency had projected that the gross NPAs in the banking sector would touch 5
per cent of the total assets by the end of fiscal 2010-11. However, this level may come down to 4.5
per cent in the changed scenario, Kudva said.
A majority of the banks had seen a sharp rise in their slippages in the wake of the global financial
crisis, as businesses took a hit and resulted in job losses.
Recently, SBI Chairman, O P Bhatt had said there was a possibility of bad loans rising in the next few
months, especially those given to small and medium sized companies though it would be under a
manageable level.
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Tags : NPAs | Crisil | non-performing
assets
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Banks' NPAs at alarming level, real estate a worry

TNN, Jul 25, 2010, 11.57pm IST
Article
Comments
Tags:non-performing assets|loans|commercial banks

NEW DELHI: Non-performing assets (NPAs) in commercial banks have gone up to an alarming level, most of it caused due to restructuring
of loans to the real estate and textile sectors. The government may further tighten financing to real estate businesses to avoid the possibility of an
asset bubble.
Speaking on the sidelines of a meeting of heads of Regional Rural Banks with the finance minister in the Capital, banking secretary R Gopalan
said NPAs in the restructured loan category of the real estate sector had gone up. He said the government may not go in for any more
restructuring of loans as the past concessions were one-time measures and granted to beat the slowdown.
The tough stand of the government, if coupled with lending rate hikes by RBI which is to be announced on Tuesday, may make survival of many
builders and developers difficult given the fact that they had pumped in hundreds of crores into the sector and were holding on to their stocks for
lack of customers.
RBI has indicated that it will further tighten its monetary policy as double digit inflation is a major concern for an overheating economy at this
juncture. Even the PM's economic advisory council in its first quarter review last week urged the central bank to intervene with tighter monetary
policy to contain inflation.
The outstanding credit of banks, both public and private, to commercial real estate at the end of March 2009 was Rs 91,500 crore against Rs
63,000 crore till March 2008. This was an increase of 45% over the previous year and more than double the amount of Rs 44,000 crore exposure
of these banks during boom period of 2007.
Read more: Banks' NPAs at alarming level, real estate a worry - India

Business - Business - The Times of
India http://timesofindia.indiatimes.com/business/india-business/Banks-
NPAs-at-alarming-level-real-estate-a-
worry/articleshow/6216493.cms#ixzz0xvmgfbkW
Bank NPA’s up by 26% in the second quarter of FY 2010
November 08, 2009: If Non-performing Assets (NPAs) and Capital Adequacy Ratio (CAR) reported
by commercial banks are an indication of their financial strength, the second quarter results of
Indian banking sector portray a mixed picture.
This is because the net non-performing assets have risen by an average 26 per cent while capital
adequacy ratio improved by 1.60 percentage points in Q2 of current fiscal as compared to the
corresponding period of previous year.
Improvement in CAR reflects better financial health of banks and government recent move to
recapitalize weak PSUs bank is a right move while increase in NPAs is a matter of concern as it
directly affects the solvency and profitability of banks.
According to ASSOCHAM, the increase in NPA of the compared period should inspire government
to quickly move towards banks consolidation as it will bring down their risks and expand banks
balance sheet size to global standard to take on emerging challenges in the financial sector, said
ASSOCHAM President, Dr. Swati Piramal.
Solvency Analysis of Indian Banking Sector as carried out by ASSOCHAM reveals that on an
average 26 per cent rise in net non performing assets (NPAs) have been registered by 21public
sector and commercial banks during the second quarter of the FY’10 as against Q2-FY’09.
However, the average capital adequacy ratio (CAR) of the banks improved to 13.68 per cent in
Q2-FY ‘10 from 12.08 per cent in the previous year, added Dr. Piramal.
The analysis of the Indian banking sector was based on the quarterly results posted by 21 Indian
banks For a macro analysis, the total 21 banks included an aggregation of 19 public sector banks
(PSBs) and 2 major private sector banks.
It is also based on two broad parameters including net non performing assets and capital
adequacy ratio and also the new enhanced provisioning coverage ratio and additional provisioning
on commercial real estate standard assets.
Non Performing Assets: A Lender’s Perspective
US banks have probably been the envy of their European

competitors with the Federal Reserve stepping in with its
bank bailout program. A point that is often overlooked in
most financial systems however, is the presence of
prudential controls upon the banking systems of most
developed economies of the world.
In the US, the regulatory body monitoring banks is the

Federal Deposit Insurance Corporation (FDIC). The FDIC
insists that banks have a 10% capital reserves ratio; a
percentage of risk weighted assets. In the event of anything
less than this ideal it is tolerant up to a level of 5-6% where
it will then take swift action to warn the bank, enforce
corrective action or even declare it insolvent and become its trustee in receivership.
Such is the threat of being undercapitalized.
In essence, the bank needs to provide capital in order to meets cover its liabilities and its operating
expenses and the FDIC capital reserves ratio seek to protect those interests. When mortgage
repayments are 90 days in arrears, they are then deemed to be non-performing assets (NPA’s) and
as such will reduce capital reserves due to the increased risk weighting of the non performing loans.
With the ratings agencies making an art form of downgrading securities after the subprime mortgage
crisis, many banks will find their capital reserve demands escalating dramatically as the risk
weighting of these toxic assets increases with respect to capital.
Most of the stalwart banks such as JP Morgan, Citigroup, and Wells Fargo have a capital reserves
ratio of between 10-13%. The bottom line for a bank when capital reserve ratios fall is consequential
in many areas. In order to maintain the capital reserve requirements of the FDIC in the face of non-
performing assets the banks have to cease buyback programs for shares, reduce dividend payouts
and in fact issue more stock in order to survive in the marketplace. As survival in the market is more
important than short term profit, banks effectively cease to invest for profit and focus all their
energies into preserving their operations and avoiding the control of the FDIC watchdog.
This sad turn of events doesn’t end there. It also results in less finance being available for business
and investment, which in turn contracts production and eventually increases unemployment.
Household and consumer spending then cease, and the economy contracts. In the event of two
consecutive negative quarters of growth, a technical recession is achieved. At best, as
unemployment is a delayed indicator, a dramatic increase in unemployment may also suggest a
recession is in effect.
So it can now be seen why the banks have such a genuine motivation toward getting non-performing
assets off their balance sheets. During the GFC, many financial institutions failed to list their NPA’s
on their balance sheets in a bid to avoid FDIC requirements, to escape a admonishing of their share
price by the market, and also to continue trading for profits.
Therefore, banks will certainly entertain a short sale investor who is prepared to make a firm offer.
Without a formal offer however, banks are unable to entertain the prospect of discounting the value
of the non performing asset, and even when one is presented, in pursuance of policy & procedure
guidelines, the lender will invariably enter into a procedure that will take considerable time for
approval. At this stage, the prospective buyer has often flown the coup.
Management Of Non - Performing Assets in Banking System

Posted in Dissertation on July 15, 2010 by Skyline Business School
Name: Naveen Jain (2008 -2010)
Title: Management Of Non - Performing Assets in Banking System
Objectives:
1. To know the reasons for an asset becoming Non-Performing Asset
2. To study the position of Non-performing Assets in various banks
3. To study the procedure and tools used for management of NPAs .

Suggestions:
 There surely is a need to distinguish between willful and unwilling defaulters. In case
of the latter category of defaulters the law should not be as harsh as in case of willful
defaulters.
• The act should be judiciously and selectively applied so that NPAs could be
converted into performing assets.
• Compromise wherever possible and desirable should be resorted to as per bank’s
extent terms and conditions.
• Creation of additional benches and enhancing the capacity of DRT (debt recovery
tribunal) can be rationalized and delays could be avoided.
• Segregation of the benches should be done in order to ensure that a flood of small
cases do not retard the disposal of larger cases.
• In order to reduce the balance of NPAs, Bank should constantly review and monitor
the accounts and the progress of the project for which the loan has been sanctioned.
Findings:
The reduction in loan installment to 90 days may raise the NPA levels in the short
run. But in turn will improve the asset quality of the banks.
2. The lenders cannot take undue advantage of the new act. Provisions for lenders
liquidity have been added to protect the borrowers against irresponsible claims by
lenders.
3. Private Banks have more efficient management of NPAs as compared to PSBs.
4. Gross NPAs of PSBs are 51537 and whereas private sector Banks are 5771.17.
5. Due to the introduction of securitisation, public sector banks have been able to
reduce their NPAs to a considerable event.
6. Securitization Act is remarkable legislation in the Indian Banking history, certain
issues are yet to be resolved for effective, implementation of the Act.
7. NPA art can help reset lending rates.
8. The net NPAs of UBI has reduced from 9.5% to 5.33%
9. The net NPAs of SBI has reduced from 6.527% to 3.44%
10. The net NPA of OBC has risen from 3.54 to 10.25%.

Conclusion:
There has been a continuous decrease in the time period considered to declare a
loan as non-performing. The continuous decrease in the time period is to bring
the Indian banking norms at par with international norms. This move will
certainly reduce the NPAs and in turn improve the asset quality of the banks.
• Till recent past, corporate borrowers even after defaulting continuously never had
the fear of bank taking action to recover their dues. This is because there was no
legal framework to safeguard the real interest of banks.
• However with the introduction of SARFAECI ACT banks can issue notices to
defaulters to repay their loans. Also, the Supreme Court has recently given the
banks the freedom to sell mortgage assets of the borrowers, if they do not respond
to the legal proceedings initiated by lender. This enables banks to get rid of sticky
loans thereby improving their bottom lines.
Indian Banking sector is dominated by Public sector banks (PSBs) which accounted for
72.6% of total advances for all SCBs as on 31st March 2008. PSBs have rapidly expanded
their foot prints after nationalisation of banks in India in 1969 and further in 1980. Although
there is a restrictive entry/expansion for private and foreign banks in India, these banks have
increased their presence and business over last 5 years.

Peculiar characteristic of Indian banks unlike their western counterparts such as high share of
household savings in deposits(57.4% of total deposits), adequate capitalisation, stricter
regulations and lower leverage makes them less prone to financial crisis, as was seen in the
western world in mid FY09.

The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth from
FY04 to the mid of FY09. Totaldeposits, advances and net profit grew at CAGR of 19.6%,
27.4% and 20.2% respectively from FY03 to FY08. Banking sector recorded credit growth of
33.3% in FY05 which was highest in last 2 and half decades and credit growth in excess of
30% for three consecutive years from FY04 to FY07, which is best in the banking industry so
far. Increase in economic activity and robust primary and secondary markets during this
period have helped the banks to garner larger increase in their fee based incomes.

A significant improvement in recovering the NPAs, lowest ever increase in new NPAs
combined with a sharp increase in gross advances for SCBs translated into the best asset
quality ratio for banking sector in last two decades. Gross NPAs to gross advances ratio for
SCBs decreased from the high of 14% in FY2000 to 2.3% in FY08.

With in the group of banks, foreign and private sector banks grew at higher rate than the
industry from FY03 to FY08 primarily because of lower base effect and rapid expansion
undertaken by these banks. In FY09, overall growth in credit and deposits was led by PSBs.
However, growth of private and foreign banks was significantly lower in FY09 due to their
high exposure to stressed sectors and problem at parent level for foreign banks.

Unsecured bank credit has risen over the years and stood at 23.3% of bank credit in FY08 as
compared to just 10.9% in FY2000. Lending to sensitive sector has also grown at CAGR of
46.1% from FY05 to FY08. In the backdrop of the economic downturn, CARE Research
feels that the excellent performance seen in last five years ended FY08 will be difficult to
repeat in coming years.

CARE Research expects that with the downturn in the economy, credit and deposit growth
will moderate in coming years. Credit growth will be led by spending on the infrastructure
while retail credit will show a moderate growth. Margin pressures due to lag effect of rate
cuts between interest rate on deposits and advances, lower treasury gains and core fee income
and increasing in provisions for NPAs is likely to put pressure in the bottom line of the banks.

Going forward, PSBs’ which are close to the required lower level of government stake and
have concentrated presence in particular region are likely to consider its merger with other
PSB as an important option if they want to sustain the growth seen in past.

With the downturn in the economy, CARE Research expects that credit and deposit growth
will moderate in coming years. Credit growth will be led by spending on the infrastructure
while retail credit will show a moderate growth. Margin pressures due to lag effect of rate
cuts between interest rate on deposits and advances, lower treasury gains and core fee income
and increasing in provisions for NPAs is likely to put pressure in the bottom line of the banks.

The report elucidates facts about the Indian Banking Sector, supplemented by latest statistical
data and comprehensive analysis. The report, comprising of 16 chapters provides an in-depth
view of the Banking Sector with FY09 result analysis and Statistics on banks from FY04-
FY08.

*

History of Indian Banking sector since inception followed by role of regulator
and policy measures adopted in FY09.
*

Detail study of total resources of the banks from FY01 onwards, trend
in deposits mobilisation by various bank groups, low cost deposits and movements in interest
rate on deposits and on competing instruments.
*

Trend in credit offtake since FY01 with detailed analysis of credit offtake in FY09. Trend
in sectoral credit, sensitive and priority sector lending, Industrial credit, type-wise and
securitiywise credit for SCBs and for various banking groups. The report also includes bank
group-wise analysis of maturity mismatch between deposits and advances.
*

Analysis of trend in SLR and Non-SLR investments over the years and bank-
group wise analysis of credit to depositand investment to deposit ratio.
*

Break-up of total income and its trend analysis. Comprehensive study of trend in
operating cost and staff cost of the SCBs as a whole and various banking groups.
*

In-depth analysis of spread and Net Interest Margins (NIMs) for banking sector and
various banking groups.
*

Analysis of trend in profitability for the sector and bank-groups over last 5 years
including the growth drivers and factor impacting the bottomline.
*

Trend in Non-performing Assets (NPAs) since year 2000 for the sector and various bank
groups. Sectoral break-up of the NPAs and recovery in NPAs over the years. Detailed study
of the restructuring regulations and impact on banks
*

Need for high capital adequacy ratio and soundness of banking system in Indian is
envisaged by presenting the trend in CAR over the years and resources raised by the banks
over the years.
*

Comprehensive study on the need for consolidation with in the banking industry as a
viable option to sustain growth with detailed reasoning Quick analysis of FY09 results by
dividing banks into PSBs and private sector banks. Analysis of trend in CASA ratio and
restructured assets for FY09
*

Outlook on Advances and deposit growth in FY10 and FY11 for the banking sector and
various banking groups along with the detailed presentation of the methodology adopted for
the projections. Outlook on investments and treasury gains, fee income for the banks, Net
Interest Margins and NPAs and overall profitability going forward in FY10 and FY11.
NPAs and Restructured Loans

Net NPAs, as a proportion of net customer assets, was 0.36% as on 31st March 2010 compared to 0.35% as on
31st March 2009 and 0.46% as on 31st December 2009. Gross NPAs as a proportion of gross customer assets
stood at 1.13% as on 31st March 2010, compared to 0.96% as on 31st March 2009 and 1.23% as on 31st
December 2009. The Bank had a provision coverage of 72.38% as on 31st March 2010 as a proportion of
Gross NPAs) including prudential write-offs. The provision coverage (as a proportion of Gross NPAs) before
accumulated write-offs was 88.61%.
During the quarter, the Bank added Rs. 247.22 crores to Gross NPAs. Recoveries and upgradations of Rs.
97.25 crores and write-offs of Rs. 5.47 crores during the quarter resulted in a closing position of Rs. 1,318.00
crores of Gross NPAs on 31st March 2010, higher than the position at the end of December 2009 by Rs. 144.50
crores.
The Bank restructured loans aggregating Rs. 160.34 crores during Q4FY10. The cumulative value of assets
restructured till 31st March 2010, however, declined to Rs. 2,286.10 crores (1.96% of gross customer assets)
due to the payment of restructured assets of Rs. 155.20 crores, and the slippage of Rs. 28.28 crores to NPA.
The diminution in fair value against the restructured loans during the quarter was Rs. 3.75 crores and has
been provided for.
The segment-wise break-up of restructured loans as on 31st March 2010 is as follows.
Large and Mid-Corporate Credit 69.30%
SME 21.08%
Agri 6.14%
Capital Markets 3.48%
The sector-wise breakup of restructured loans as on 31st March 2010 as follows:
Textiles 23.17%
Shipping 19.64%
Sugar 8.23%
Real Estate 7.59%
Others 41.37%
Report on Indian Banking Sector

Indian Customers Kindly Click Here

Indian Banking Sector: Edgy but Resilient

Indian Banking sector is dominated by Public sector banks (PSBs) which accounted for 72.6% of total
advances for all SCBs as on 31st March 2008. PSBs have rapidly expanded their foot prints after
nationalisation of banks in India in 1969 and further in 1980. Although there is a restrictive
entry/expansion for private and foreign banks in India, these banks have increased their presence and
business over last 5 years.
Peculiar characteristic of Indian banks unlike their western counterparts such as high share of
household savings in deposits (57.4% of total deposits), adequate capitalisation, stricter regulations
and lower leverage makes them less prone to financial crisis, as was seen in the western world in mid
FY09.

The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth from FY04 to
the mid of FY09. Total deposits, advances and net profit grew at CAGR of 19.6%, 27.4% and 20.2%
respectively from FY03 to FY08. Banking sector recorded credit growth of 33.3% in FY05 which was
highest in last 2 and half decades and credit growth in excess of 30% for three consecutive years
from FY04 to FY07, which is best in the banking industry so far. Increase in economic activity and
robust primary and secondary markets during this period have helped the banks to garner larger
increase in their fee based incomes.

A significant improvement in recovering the NPAs, lowest ever increase in new NPAs combined with a
sharp increase in gross advances for SCBs translated into the best asset quality ratio for banking
sector in last two decades. Gross NPAs to gross advances ratio for SCBs decreased from the high of
14% in FY2000 to 2.3% in FY08.
With in the group of banks, foreign and private sector banks grew at higher rate than the industry from
FY03 to FY08 primarily because of lower base effect and rapid expansion undertaken by these banks.
In FY09, overall growth in credit and deposits was led by PSBs. However, growth of private and
foreign banks was significantly lower in FY09 due to their high exposure to stressed sectors and
problem at parent level for foreign banks.

Unsecured bank credit has risen over the years and stood at 23.3% of bank credit in FY08 as
compared to just 10.9% in FY2000. Lending to sensitive sector has also grown at CAGR of 46.1%
from FY05 to FY08. In the backdrop of the economic downturn, CARE Research feels that the
excellent performance seen in last five years ended FY08 will be difficult to repeat in coming years.

CARE Research expects that with the downturn in the economy, credit and deposit growth will
moderate in coming years. Credit growth will be led by spending on the infrastructure while retail
credit will show a moderate growth. Margin pressures due to lag effect of rate cuts between interest
rate on deposits and advances, lower treasury gains and core fee income and increasing in provisions
for NPAs is likely to put pressure in the bottom line of the banks.

Going forward, PSBs’ which are close to the required lower level of government stake and have
concentrated presence in particular region are likely to consider its merger with other PSB as an
important option if they want to sustain the growth seen in past.

With the downturn in the economy, CARE Research expects that credit and deposit growth will
moderate in coming years. Credit growth will be led by spending on the infrastructure while retail
credit will show a moderate growth. Margin pressures due to lag effect of rate cuts between interest
rate on deposits and advances, lower treasury gains and core fee income and increasing in provisions
for NPAs is likely to put pressure in the bottom line of the banks.
The report elucidates facts about the Indian Banking Sector, supplemented by latest statistical data
and comprehensive analysis. The report, comprising of 16 chapters provides an in-depth view of the
Banking Sector with FY09 result analysis and Statistics on banks from FY04-FY08.
 History of Indian Banking sector since inception followed by role of regulator and policy
measures adopted in FY09.
 Detail study of total resources of the banks from FY01 onwards, trend in deposits mobilisation
by various bank groups, low cost deposits and movements in interest rate on deposits and on
competing instruments.
 Trend in credit offtake since FY01 with detailed analysis of credit offtake in FY09. Trend in
sectoral credit, sensitive and priority sector lending, Industrial credit, type-wise and
securitiywise credit for SCBs and for various banking groups. The report also includes bank
 Analysis of trend in SLR and Non-SLR investments over the years and bank-group wise
analysis of credit to deposit and investment to deposit ratio.
 Break-up of total income and its trend analysis. Comprehensive study of trend in operating
cost and staff cost of the SCBs as a whole and various banking groups.
 In-depth analysis of spread and Net Interest Margins (NIMs) for banking sector and various
banking groups.
 Analysis of trend in profitability for the sector and bank-groups over last 5 years including the
growth drivers and factor impacting the bottomline.
 Trend in Non-performing Assets (NPAs) since year 2000 for the sector and various bank
groups. Sectoral break-up of the NPAs and recovery in NPAs over the years. Detailed study
of the restructuring regulations and impact on banks
 Need for high capital adequacy ratio and soundness of banking system in Indian is envisaged
by presenting the trend in CAR over the years and resources raised by the banks over the
years.
 Comprehensive study on the need for consolidation with in the banking industry as a viable
option to sustain growth with detailed reasoning Quick analysis of FY09 results by dividing
banks into PSBs and private sector banks. Analysis of trend in CASA ratio and restructured
assets for FY09
 Outlook on Advances and deposit growth in FY10 and FY11 for the banking sector and
various banking groups along with the detailed presentation of the methodology adopted for
the projections. Outlook on investments and treasury gains, fee income for the banks, Net
 A section which focuses on the profile of the Top-11 players in the Indian banking sector. It
includes
 profit and loss account analysis from FY05 to FY09,
 analysis of results of last 8 quarters i.e. Q1FY08 to Q4FY09,
 balance sheet analysis & ratio analysis,
 trend in shareholding pattern in the last 5 years and
 pictorial presentation of trend in NPAs in last 8 quarters.
Indian Banking sector is dominated by Public sector banks (PSBs) which accounted for 72.6% of total advances for all SCBs as on 31st March 2008. PSBs
have rapidly expanded their foot prints after nationalisation of banks in India in 1969 and further in 1980. Although there is a restrictive entry/expansion for
private and foreign banks in India, these banks have increased their presence and business over last 5 years.
Peculiar characteristic of Indian banks unlike their western counterparts such as high share of household savings in deposits (57.4% of total deposits),
adequate capitalisation, stricter regulations and lower leverage makes them less prone to financial crisis, as was seen in the western world in mid FY09.
The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth from FY04 to the mid of FY09. Total deposits, advances and net profit
grew at CAGR of 19.6%, 27.4% and 20.2% respectively from FY03 to FY08. Banking sector recorded credit growth of 33.3% in FY05 which was highest in last
2 and half decades and credit growth in excess of 30% for three consecutive years from FY04 to FY07, which is best in the banking industry so far. Increase in
economic activity and robust primary and secondary markets during this period have helped the banks to garner larger increase in their fee based incomes.
A significant improvement in recovering the NPAs, lowest ever increase in new NPAs combined with a sharp increase in gross advances for SCBs translated
into the best asset quality ratio for banking sector in last two decades. Gross NPAs to gross advances ratio for SCBs decreased from the high of 14% in
FY2000 to 2.3% in FY08.
With in the group of banks, foreign and private sector banks grew at higher rate than the industry from FY03 to FY08 primarily because of lower base effect
and rapid expansion undertaken by these banks. In FY09, ov
erall growth in credit and deposits was led by PSBs. However, growth of private and foreign banks was significantly lower in FY09 due
to their high exposure to stressed sectors and problem at parent level for foreign banks.
Unsecured bank credit has risen over the years and stood at 23.3% of bank credit in FY08 as compared to just 10.9% in FY2000.
Lending to sensitive sector has also grown at CAGR of 46.1% from FY05 to FY08. In the backdrop of the economic downturn, it feels
that the excellent performance seen in last five years ended FY08 will be difficult to repeat in coming years.
It expects that with the downturn in the economy, credit and deposit growth will moderate in coming years. Credit growth will be led by
spending on the infrastructure while retail credit will show a moderate growth. Margin pressures due to lag effect of rate cuts between
interest rate on deposits and advances, lower treasury gains and core fee income and increasing in provisions for NPAs is likely to put
pressure in the bottom line of the banks.
Going forward, PSBs’ which are close to the required lower level of government stake and have concentrated presence in particular
region are likely to consider its merger with other PSB as an important option if they want to sustain the growth seen in past.
With the downturn in the economy, it expects that credit and deposit growth will moderate in coming years. Credit growth will be led
by spending on the infrastructure while retail credit will show a moderate growth. Margin pressures due to lag effect of rate cuts
between interest rate on deposits and advances, lower treasury gains and core fee income and increasing in provisions for NPAs is
likely to put pressure in the bottom line of the banks.
The report elucidates facts about the Indian Banking Sector, supplemented by latest statistical data and comprehensive analysis. The
report, comprising of 16 chapters provides an in-depth view of the Banking Sector with FY09 result analysis and Statistics on banks
from FY04-FY08.
History of Indian Banking sector since inception followed by role of regulator and policy measures adopted in FY09.
Detail study of total resources of the banks from FY01 onwards, trend in deposits mobilisation by various bank groups, low cost
deposits and movements in interest rate on deposits and on competing instruments.
Trend in credit offtake since FY01 with detailed analysis of credit offtake in FY09. Trend in sectoral credit, sensitive and priority sector
lending, Industrial credit, type-wise and securitiywise credit for SCBs and for various banking groups. The report also includes bank
Analysis of trend in SLR and Non-SLR investments over the years and bank-group wise analysis of credit to deposit and investment to
deposit ratio.
Break-up of total income and its trend analysis. Comprehensive study of trend in operating cost and staff cost of the SCBs as a whole
and various banking groups.
In-depth analysis of spread and Net Interest Margins (NIMs) for banking sector and various banking groups.
Analysis of trend in profitability for the sector and bank-groups over last 5 years including the growth drivers and factor impacting the
bottomline.
Trend in Non-performing Assets (NPAs) since year 2000 for the sector and various bank groups. Sectoral break-up of the NPAs and
recovery in NPAs over the years. Detailed study of the restructuring regulations and impact on banks
Need for high capital adequacy ratio and soundness of banking system in Indian is envisaged by presenting the trend in CAR over the
years and resources raised by the banks over the years.
Comprehensive study on the need for consolidation with in the banking industry as a viable option to sustain growth with detailed
reasoning Quick analysis of FY09 results by dividing banks into PSBs and private sector banks. Analysis of trend in CASA ratio and
restructured assets for FY09
Outlook on Advances and deposit growth in FY10 and FY11 for the banking sector and various banking groups along with the detailed
presentation of the methodology adopted for the projections. Outlook on investments and treasury gains, fee income for the banks, Net
A section which focuses on the profile of the Top-11 players in the Indian banking sector. It includes
profit and loss account analysis from FY05 to FY09,
analysis of results of last 8 quarters i.e. Q1FY08 to Q4FY09,
balance sheet analysis & ratio analysis,
trend in shareholding pattern in the last 5 years and
pictorial presentation of trend in NPAs in last 8 quarters.
Report on Indian Banking Sector
Bharatbook launches a new report on "Indian Banking Sector". Although there is a restrictive entry/expansion for private and foreign banks in India,
the banks have increased their presence and business over last 5 years.
Print View
October 16, 2009 (FPRC) -- Report on Indian Banking Sector report ( http://www.bharatbook.com/Market-Research-Reports/Report-on-Indian-
Banking-Sector.html ) elucidates facts about the Indian Banking Sector, supplemented by latest statistical data and comprehensive analysis. The
report, comprising of 16 chapters provides an in-depth view of the Banking Sector with FY09 result analysis and Statistics on banks from FY04-
FY08.
Indian Banking sector is dominated by Public sector banks (PSBs) which accounted for 72.6% of total advances for all SCBs as on 31st March 2008.
PSBs have rapidly expanded their foot prints after nationalisation of banks in India in 1969 and further in 1980.
Peculiar characteristic of Indian banks unlike their western counterparts such as high share of household savings in deposits (57.4% of total
deposits), adequate capitalisation, stricter regulations and lower leverage makes them less prone to financial crisis, as was seen in the western
world in mid FY09.
The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth from FY04 to the mid of FY09. Total deposits, advances and net
profit grew at CAGR of 19.6%, 27.4% and 20.2% respectively from FY03 to FY08. Banking sector recorded credit growth of 33.3% in FY05 which
was highest in last 2 and half decades and credit growth in excess of 30% for three consecutive years from FY04 to FY07, which is best in the
banking industry so far. Increase in economic activity and robust primary and secondary markets during this period have helped the banks to garner
larger increase in their fee based incomes.
A significant improvement in recovering the NPAs, lowest ever increase in new NPAs combined with a sharp increase in gross advances for SCBs
translated into the best asset quality ratio for banking sector in last two decades. Gross NPAs to gross advances ratio for SCBs decreased from the
high of 14% in FY2000 to 2.3% in FY08.
With in the group of banks, foreign and private sector banks grew at higher rate than the industry from FY03 to FY08 primarily because of lower
base effect and rapid expansion undertaken by these banks. In FY09, overall growth in credit and deposits was led by PSBs. However, growth of
private and foreign banks was significantly lower in FY09 due to their high exposure to stressed sectors and problem at parent level for foreign
banks.
Topics:
History of Indian Banking sector since inception followed by role of regulator and policy measures adopted in FY09.
Detail study of total resources of the banks from FY01 onwards, trend in deposits mobilisation by various bank groups, low cost deposits and
movements in interest rate on deposits and on competing instruments.
Trend in credit offtake since FY01 with detailed analysis of credit offtake in FY09. Trend in sectoral credit, sensitive and priority sector lending,
Industrial credit, type-wise and securitiywise credit for SCBs and for various banking groups. The report also includes bank group-wise analysis of
maturity mismatch between deposits and advances.
Analysis of trend in SLR and Non-SLR investments over the years and bank-group wise analysis of credit to deposit and investment to deposit ratio.
Break-up of total income and its trend analysis. Comprehensive study of trend in operating cost and staff cost of the SCBs as a whole and various
banking groups.
In-depth analysis of spread and Net Interest Margins (NIMs) for banking sector and various banking groups.
Analysis of trend in profitability for the sector and bank-groups over last 5 years including the growth drivers and factor impacting the bottomline.
Trend in Non-performing Assets (NPAs) since year 2000 for the sector and various bank groups. Sectoral break-up of the NPAs and recovery in NPAs
over the years. Detailed study of the restructuring regulations and impact on banks
Need for high capital adequacy ratio and soundness of banking system in Indian is envisaged by presenting the trend in CAR over the years and
resources raised by the banks over the years.
Comprehensive study on the need for consolidation with in the banking industry as a viable option to sustain growth with detailed reasoning Quick
analysis of FY09 results by dividing banks into PSBs and private sector banks. Analysis of trend in CASA ratio and restructured assets for FY09
Outlook on Advances and deposit growth in FY10 and FY11 for the banking sector and various banking groups along with the detailed presentation
of the methodology adopted for the projections. Outlook on investments and treasury gains, fee income for the banks, Net Interest Margins and
NPAs and overall profitability going forward in FY10 and FY11.

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Banks have ability to withstand stress

BS Reporter / Mumbai March 26, 2010, 0:31 IST

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