PSBs lag in NPA cut

The NPAs of public-sector banks (PSBs) have been coming down for the past three years in a row, still they are lagging behind their peers in the private sector in scheduled commercial banks (SCBs) for the year gone by, says an RBI report.

The GNPA of PSBs as on March 31, 2021, stands at Rs 6,16,616 crore as against Rs 6,78, 317 crore as on March 31, 2020, and Rs7,39,541 crore as on March 31, 2019. It shows that the GNPAs of PSBs have been falling in the past three years constantly.

Still, when compared to SCBs, they have been the laggards. In percentage terms, the GNPA of PSBs as on March 31 stands at 9.5 and net NPA was at 3.1.

In contrast, the SCBs' GNPA as on March 31 stands at 7.5 per cent and net NPA was at 2.4 per cent, which is much less than that of PSBs.

As per a BCG report, overall Industry GNPA has curved over the past five years- currently at 7.4 per cent. Second wave poses risk to asset quality, bank retains healthy provisioning buffer.NPAs contained for overall banking industry.However, the asset quality is still a major concern for many banks.Higher NPA recoveries may ease pressure on banks. Asset sales to ARCs increasing over time, but with high haircuts, it added.

Talking to Bizz Buzz, M Narendra, former CMD, Indian Overseas Bank, said that "the financial sector particularly SCBs including PSBs are in a better position now, as compared to pre-Covid period. Even though it was expected that there will be large request for Restructuring, as on

March 31, 2021, hardly 0.9 per cent advances were restructured. Banks have also responded positively to the Central Govt package of Emergency Credit Guarantees Scheme (ECGS), which is now extended to Rs4.5 lakh crore. Sanction has almost nearing Rs 3 crore and the government'sinitiative is of further enhancing with larger coverage times. "It may be noted in the earlier Restructuring scheme-1 of RBI, corporate, MSME, retail and others availed restructuring only to the extent of 0.9%, 1.7% and 0.7% respectively. Now that RBI has given benefit of Restructuring-2, it is expected that such of MSMEs and Retail avail the same. Market expects there will be additional NPAs in these sectors due to Covid-2nd wave, it is expected that the same will be moderate. RBI Financial Stability Report expects bad loans of banking system in base case scenarios expected to hit 11.22 per cent. With recovery and revival of the Indian economy, I hope NPAs of the banking system will be contained," he added. Gross NPAs, which piled up as high as 11.2 per cent in FY 2018 had come down to 7.5 per cent by March in case of SCBs.

However, RBI's latest Financial Stability Report warns that NPA levels are likely to get worse again. NPA levels may see a spike from 7.5 per cent in 2021 to 11.2 per cent in March 2022 under severe stress scenario. Large advances contributed to over 77.9 per cent of bad loans. According to latest FSR, MSME are showing signs of severe stress even after special restructuring packages of about Rs 58,000 crore. The impact of ferocious Covid second wave on businesses particularly MSME is a matter of concern.

In terms of capital raising, going by the advice of the RBI governor to raise capital so as to meet the demand generated in the system due to the ongoing pandemic, PSBs have raised Rs 58,700 crore in the FY21 in the form of equity and bond both. In contrast, SCBs also raised money to the tune of Rs 70,000 crore during the year.

As a result, the capital adequacy ratio (CAR) of PSBs improved to 13.8 as against SCBs' CAR at 16 as on March 31.

Talking in terms of provision coverage ratio (PCR), it stood at 68.4 for PSBs, whereas in case of SCBs, it was a bit higher at 68.9. However, in some cases, the PCR of PSBs has improved to 84 per cent as on end-June.

Coming on profitability, the PSBs made a net profit of Rs 31,816 crore as on March 31. Though the total profit made by them in the year gone was at Rs 57,832 crore during the year. Because, PSBs had incurred a net loss of Rs 26,015 crore in the previous year.