Bad loan clean-up: Co-opt ‘name & shame’ policy
The total bad exposures, including rescheduled and written-off assets, has grown to 17 per cent as on September 15 last year, from 13.4 per cent in March 2013 and 14.1 per cent in March 2014 and 16.1 per cent in March 2015.
Even as Reserve Bank of India (RBI) Governor Raghuram Rajan says the claims made by analysts on the size of bad loans in the country's banking system border on scare-mongering, official data does not paint a rosy picture and even shatters some popular perceptions.
As per statistics available with the central bank, the net NPAs, or non-performing assets, of all banks, excluding accrued interest, was 2.8 per cent of total loans as on September 15 last year. For state-run banks, it was 3.6 per cent a sign that it is not uniform across the industry.
But the problem gets compounded when one takes into account the gross NPAs, that also includes the interest component: 5.1 percent for all banks and 6.2 per cent for state-run banks. And by adding one more component, rescheduled loans, the issue becomes even more perplexing.
The quantum of gross bad loans, along with rescheduled ones (usually done when a loanee is unable to pay in time, and banks allow some more time so as to get the money back), jumps significantly to 11.3 per cent for all banks and 14 per cent for government-run banks.
Then there are the write-offs that is, the loanee has been unable to pay and banks are forced to consider them as exposures they'll never get back. Together with gross bad loans and rescheduled assets, this ratio is at 14.1 per cent for all banks and 17 per cent for state-run ones. For private sector and foreign banks, it is distinctly lower at 6.7 per cent and 5.8 per cent.
When we compare historical data, the total bad exposures, including rescheduled and written-off assets, has grown to 17 per cent as on September 15 last year, from 13.4 per cent in March 2013 and 14.1 per cent in March 2014 and 16.1 per cent in March 2015.
For private banks, the respective figures are 5.4 per cent, 6.4 per cent and 6.7 per cent, while for foreign banks, it is 5.5 per cent, 6.3 per cent and 6.5 per cent. Rajan says not all bad loans are due to malfeasance. Then governance must be the reason for private versus state-run mismatch.
Is this not alarming?
A presentation on asset resolution and management of bad loans of commercial banks by RBI Deputy Governor S S Mundra at a banking conclave of the Confederation of Indian Industry recently, just ahead of the talk by Rajan, puts the issues in perspective.
Contrary to the general perception, the level of stress is a lot more pronounced in the so-called non-priority areas, when compared to the exposures to the farm sector and the micro enterprises. This apart, large industries are the ones that have the highest NPA ratio.
The central bank data reinforces this fact. The ratio of gross bad exposures, plus rescheduled loans, plus written-off assets for all banks was 7.9 per cent for the agriculture sector, 12.3 per cent for the micro enterprises and a whopping 23.7 per cent for large industries. For small and medium scale sectors it was 16.8 per cent and 31.5 per cent respectively.
The picture emerges even clearer seeing the actual quantum of money involved. As per the Reserve Bank's weekly statistical supplement, the total outstanding bank credit of all banks was Rs 67,060 billion as on September 15, 2015 this date has been taken for comparisons.
If the total exposure in terms of gross NPA, rescheduled loans and write-offs was 14.1 per cent for all of India's scheduled commercial banks, then the actual quantum works out to Rs 9,455 billion (around Rs 9.5 lakh crore).
The assumption may be that banks that were in denial over the poor quality of their loans are waking up now. This is getting reflected in the balance sheets for the quarter ended December 31, 2015. In doing so, if their net NPAs exceed 10 per cent, there will be several curtailments.
Rajan, nevertheless, sees hope. He feels the extent of government help to commercial banks in the form of capital will be adequate – Rs 70,000 crore in the present budget. He is also confident that by March 2017, the banks will have clean and fully-provisioned balance sheets.
In doing so, the misdemeanor in the system must also be addressed. The Supreme Court has given its consent to banks to publish the names and photographs of defaulters, including directors. This "name and shame" policy must be pursued vigorously by both banks and the watchdog.
Arvind Padmanabhan
