Finance
Non-Performing Assets In Indian Banks
On August 22, 2012 in Banking, Economy by Prof. S. Srinivasan (External Contributor)
The Non-Performing Assets (NPAs) of the Indian banking sector have been incessantly rising in the past six months. Historically, in 1997, NPAs were 15.8% of loans for the banking sector, which nosedived to 2.4% in 2008. This figure stands at 2.94% of loans in 2012. In absolute figures, NPAs have doubled from 2009 to 2012 and assets under reconstruction had trebled during the same period. India’s biggest lender, State Bank of India, is experiencing an NPA level of 4.99% of total loans. According to a recently published Credit Suisse Group AG report, 10 large industrial houses account for 13% of total assets financed by the Banking system, which means that bank lending is getting increasingly skewed. Further, of the total reconstructed assets, 8.24% belong to the large manufacturing sector, 3.99% are from the services sector while 1.45% are from the agricultural sector.
Reasons for growing NPAs 1. Economic slowdown - The global economy is still in the throes of an economic crisis that is looming large both in the US and Europe. There is a general slackening of domestic economic activity in India both in manufacturing and the services sectors. A sluggish economy will have a direct impact on the balance sheets and profitability of many firms who have availed of loans from the banking industry. Over a period of time, some of the hard hit firms will be compelled to default on their loans. There is a groundswell of expert opinion in India that NPAs are more an outcome of economic factors rather than any internal systemic failures. 2. High interest rates - It is a known fact that interest rates have been revised upwards, 10 times in the past two years with a view to curb inflation. High interest rate increases the cost of funds to the credit users and has a debilitating effect especially on the repayment capacity of small and medium
On August 22, 2012 in Banking, Economy by Prof. S. Srinivasan (External Contributor)
The Non-Performing Assets (NPAs) of the Indian banking sector have been incessantly rising in the past six months. Historically, in 1997, NPAs were 15.8% of loans for the banking sector, which nosedived to 2.4% in 2008. This figure stands at 2.94% of loans in 2012. In absolute figures, NPAs have doubled from 2009 to 2012 and assets under reconstruction had trebled during the same period. India’s biggest lender, State Bank of India, is experiencing an NPA level of 4.99% of total loans. According to a recently published Credit Suisse Group AG report, 10 large industrial houses account for 13% of total assets financed by the Banking system, which means that bank lending is getting increasingly skewed. Further, of the total reconstructed assets, 8.24% belong to the large manufacturing sector, 3.99% are from the services sector while 1.45% are from the agricultural sector.
Reasons for growing NPAs 1. Economic slowdown - The global economy is still in the throes of an economic crisis that is looming large both in the US and Europe. There is a general slackening of domestic economic activity in India both in manufacturing and the services sectors. A sluggish economy will have a direct impact on the balance sheets and profitability of many firms who have availed of loans from the banking industry. Over a period of time, some of the hard hit firms will be compelled to default on their loans. There is a groundswell of expert opinion in India that NPAs are more an outcome of economic factors rather than any internal systemic failures. 2. High interest rates - It is a known fact that interest rates have been revised upwards, 10 times in the past two years with a view to curb inflation. High interest rate increases the cost of funds to the credit users and has a debilitating effect especially on the repayment capacity of small and medium