NPA crisis: We’re not out of the woods yet – SBI official

A senior State Bank of India official warned against assuming that the bad loan malaise affecting the Indian banking sector has started declining.

Praveen Kumar Gupta, MD in charge of retail and digital banking, said one cannot directly draw conclusions by extrapolating trends seen in the first two quarters of the current financial year.

In their latest financial statements, government-controlled banks such as SBI have reported lower ‘slippages’ of good loans compared to previous periods.

These banks were forced to classify large chunks of their loan books as ‘bad’ after the Reserve Bank of India started cracking down on the process of ‘rolling over’ or ignoring bad loans to prevent them from showing up as non-performers.

Out of the total Rs 18.92 lakh crore lent by SBI, 1.86 lakh crore is considered to be in default.

For the quarter ended September, SBI reported that gross non performing assets — or the total money caught up in bad loans — fell by 0.14 percentage point to 9.83% of total loans.

Similarly, Indian Overseas Bank — which has among the highest bad loan percentages in the industry — reported that bad loans fell to ₹34,709 cr for the September quarter from ₹34,724 cr in the year-ago period and ₹35,453 cr three months earlier.

Asked if this indicated an end to the rising kitty of non-performing loans, Gupta said it was too early to make that call.

“We are not out of the stress actually. The stress continues. How much of it.. slips or doesn’t slip remains to be seen,” he said in an interview on CNBC-TV18.

“We still have to keep watching that quarter to quarter. I don’t really think we are out of the woods. Some asset quality concerns will (remain),” he said.

Gupta’s comments indicate caution that the NPA crisis is not over for the government-controlled banks in the country.

Government-controlled banks are blamed for giving loans to big corporate houses during the previous UPA regime without exercising caution and prudence. The bank in turn complain about political pressure that forced them to lend to such risky projects.

Many big corporate projects, including refineries, steel plants and power projects, funded by bank money have failed to achieve completion or commercialization for various reasons. As a result, the money tied up in them have turned bad.

Realizing the extent of the problem, former RBI governor Raghuram Rajan forced banks in late 2015 to stop masking non-performing loans by laying down strict guidelines on when to declare something non-performing and when to call it healthy.

It came out with a list of over 150 accounts and asked all the lenders to recognise their exposures to those as non- performing assets or bad loans.

As of August this year, bad loans are estimated to have crossed the Rs 8.2 trillion mark, or about Rs 21,000 for every working adult in the country.

It is expected that much of the losses will have to be ultimately made good by the public using tax money.

After shying away from the prospect for months, Finance Minister Arun Jaitley in October announced that Rs 2.11 lakh cr (Rs 2.11 trillion) of taxpayer money will be diverted to banks to help them tide over the crisis.