NPAs may go up 1% on export, realty loans drag
The Economic Times, January 13, 2010, Page 11
Atmadip Ray KOLKATA
RESTRUCTURED bank loans worth a whopping Rs 30,675 crore may turn bad in 2010-11, which may pushup banks’ gross non-performing assets (NPAs) on an average by one percentage point . This is a prediction by Fitch Ratings, which has just completed a study on banks’ restructuring loan portfolio. Banks’ ROA could be lower by 13 basis points in 2010-11, too, owing to surging NPA levels.
During 2008-09 and the first quarter of this fiscal, banks have restructured Rs 1.23 lakh crore collectively, which is 4.4% of total bank loans, primarily to help ease temporary cash-flows and liquidity problems faced by companies following the global financial crisis. Four industries — namely, infrastructure, textiles, commercial real estate and steel -- together account for nearly half of the total restructured loans.
According to Fitch, around 15-25% of banks’ restructured loans may turn NPAs in this fiscal. "Close to 75% of the restructured loans are expected to fall due by March 2011 and if there is no further setback in the economy, NPAs from these loans are anticipated to be within a band of 15%-25% of the portfolio," Fitch senior director Ananda Bhoumik told ET.
Incidentally, State Bank of India chairman OP Bhatt has already warned on the possibility of rising NPAs. Now, Fitch has validated Mr Bhatt’s concerns.
Fitch said private banks have restructured 2% of their loans whereas government banks restructured 5% of their loans. "This contrast is largely explained by the low exposure of the larger private banks to some of the vulnerable credit segments, including the export sectors, infrastructure and commercial real estate," the report said.
"So far, nearly all public sector banks have shown an improvement in asset quality. This is a sheer contradiction, given last year’s financial crisis and rising interest rates. This is due to the loan restructuring exercise done by banks, especially the public sector ones. Now, even as the economy has shown improvement, there could be one percentage point rise in banks’ gross NPA for the current fiscal on account of the restructured loans," Mr Bhoumik said.
The banking sector has 2.4% of their loans as NPAs now. Some banks have also deployed dedicated resources to monitor restructured accounts.
The contagion effects of the global slowdown were the most acute for export related sectors - textiles, gems and jewellery, and automotive. Fitch observed these sectors not only suffered from demand contraction in the developed countries but also from volatile exchange rates. The real estate sector suffered from falling domestic demand and real estate prices, while the iron and steel sectors faced a setback from inventory pile-up and a drop in global prices. The agriculture sector was also affected by erratic monsoons. The infrastructure industry experienced project delays and cost overruns.
However, as Mr Bhoumik said, had not been the economic condition improved, the impact on banks’ NPAs would have been worse than whatever is predicted now.
The Economic Times, January 13, 2010, Page 11
Atmadip Ray KOLKATA
RESTRUCTURED bank loans worth a whopping Rs 30,675 crore may turn bad in 2010-11, which may pushup banks’ gross non-performing assets (NPAs) on an average by one percentage point . This is a prediction by Fitch Ratings, which has just completed a study on banks’ restructuring loan portfolio. Banks’ ROA could be lower by 13 basis points in 2010-11, too, owing to surging NPA levels.
During 2008-09 and the first quarter of this fiscal, banks have restructured Rs 1.23 lakh crore collectively, which is 4.4% of total bank loans, primarily to help ease temporary cash-flows and liquidity problems faced by companies following the global financial crisis. Four industries — namely, infrastructure, textiles, commercial real estate and steel -- together account for nearly half of the total restructured loans.
According to Fitch, around 15-25% of banks’ restructured loans may turn NPAs in this fiscal. "Close to 75% of the restructured loans are expected to fall due by March 2011 and if there is no further setback in the economy, NPAs from these loans are anticipated to be within a band of 15%-25% of the portfolio," Fitch senior director Ananda Bhoumik told ET.
Incidentally, State Bank of India chairman OP Bhatt has already warned on the possibility of rising NPAs. Now, Fitch has validated Mr Bhatt’s concerns.
Fitch said private banks have restructured 2% of their loans whereas government banks restructured 5% of their loans. "This contrast is largely explained by the low exposure of the larger private banks to some of the vulnerable credit segments, including the export sectors, infrastructure and commercial real estate," the report said.
"So far, nearly all public sector banks have shown an improvement in asset quality. This is a sheer contradiction, given last year’s financial crisis and rising interest rates. This is due to the loan restructuring exercise done by banks, especially the public sector ones. Now, even as the economy has shown improvement, there could be one percentage point rise in banks’ gross NPA for the current fiscal on account of the restructured loans," Mr Bhoumik said.
The banking sector has 2.4% of their loans as NPAs now. Some banks have also deployed dedicated resources to monitor restructured accounts.
The contagion effects of the global slowdown were the most acute for export related sectors - textiles, gems and jewellery, and automotive. Fitch observed these sectors not only suffered from demand contraction in the developed countries but also from volatile exchange rates. The real estate sector suffered from falling domestic demand and real estate prices, while the iron and steel sectors faced a setback from inventory pile-up and a drop in global prices. The agriculture sector was also affected by erratic monsoons. The infrastructure industry experienced project delays and cost overruns.
However, as Mr Bhoumik said, had not been the economic condition improved, the impact on banks’ NPAs would have been worse than whatever is predicted now.
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