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This article is more than 1 year old.

Gross NPAs in PSU banks declined more than private banks since May 2018

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According to a report by Care Ratings, the amount of GNPA of the public sector banks (PSBs) declined from Rs 8.4 lakh crore as of March 31, 2018, to Rs 7.2 lakh crore as of March 31, 2019.

Gross NPAs in PSU banks declined more than private banks since May 2018
Asset Quality Review (AQR) was mandated by the Reserve Bank of India (RBI) in 2016 to recognise the stressed assets of banks. The process brought out the slippages in bank credit and had initiated the process of de-clogging the banking system. Three years later, the level of gross NPA (GNPA) is beginning to ease.
According to a report by Care Ratings, the amount of GNPA of the public sector banks (PSBs) declined from Rs 8.4 lakh crore as of March 31, 2018 to Rs 7.2 lakh crore as of March 31, 2019, primarily due to gradual reduction of incremental slippages, recoveries in some large NPAs and writing-off of bad loans.
The banks had witnessed a rise in their GNPA levels in March 2018, after the February 12, 2018 circular of the RBI which redefined the norms for recognition and restructuring of the stressed assets.
The GNPA amount for PSBs stood at Rs 7.27 lakh crore at the end of September 2019 as compared with Rs 8.08 lakh crore as at the end of September 2018, the report added.
"GNPA for private sector banks (PVBs) has sustained within Rs 2 lakh crore since September 2017. Unlike the PSBs, the PVBs have recorded a marginal rise in their GNPA amount from Rs 1.78 lakh crore in March 2018 to Rs 1.91 lakh crore in September 2019 while it was at Rs 1.76 lakh crore in March 2019," the report noted.
As of September 30, 2019, the PSBs registered a contraction in their Gross NPA amount by (-) 10 percent as compared with a rise of 18.4 percent witnessed in the corresponding period the previous year, the rating agency stated.
Banks
The PSBs have been conservative in deploying credit on account of the PCA Framework which laid restrictions on their lending to vulnerable sectors. As of November 30, 2018, 11 PSBs were under the PCA; there are four PSBs under the framework at present.
As per the data in the report, the gross NPA amount of PVBs, meanwhile, grew by 3.3 percent as of September 30, 2019. The magnitude of NPAs held by PVBs is substantially lower than the PSBs. However, unlike the PSBs who has been recording a considerable decline in GNPA amount since March 2019, the private lenders have been recording growth in their slippages post-March 2019 on account of exposure to entities with solvency issues, it further said.
Against the backdrop of high NPAs especially in the corporate segment, banks focused on lending to the retail segment, and the trend has continued into the second quarter of FY20. The accommodative stance of the RBI in the recent monetary policy along with the rate cuts in the previous policy statements is intended at reviving sentiment and spur the domestic demand, it quoted.
These effects are likely to have a positive impact on growth in bank credit, especially if the growth in retail lending is sustained, the report noted.
Those PVBs with greater exposure to corporate loans are the ones recording a higher amount of GNPA. However, the decline in the overall slippages is a sign of improvement in the banking system.
In light of the June 7 circular of the RBI, the banks have to factor in the effect of the newly prescribed timelines for the restructuring and provisioning of their stressed assets.
"Release of funds from the NCLT will bring profits to the banks through the recovery of loans. The recent verdict of the Supreme Court on the telecom sector is also likely to impinge on the quality of the telecom assets. Presently, the banks have an exposure of Rs 1.15 lakh crore as of September 30, 2019, towards the telecom sector and the industrial sector (including telecom) GNPA ratio was the highest amongst the other sectors, as of March 31, 2019. The NPAs are also likely to grow given the exposures to certain stressed sectors (NBFCs and infra) and to the Mudra loans," the report stated.
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