INSUBCONTINENT EXCLUSIVE:
quarter, numbers were elevated nonetheless.This comes as no surprise since PSU banks are notorious for having a high number of stressed
assets or non-performing assets (NPAs) on their balance sheet.What are NPAs?A non-performing asset (NPA) is a loan or advance for which the
principal or interest payment is overdue for 90 days.They are of two types - gross NPAs and net NPAs
Gross NPAs refer to the total amount of debts a bank has while net NPAs refer to the total amount of stressed assets the bank has after
accounting for provisions.High NPAs indicate that the bank is in poor health as they place a significant burden on the bank.A significant
number of NPAs over time may indicate that the financial situation of the bank is at risk.Here are five banks with consistently high NPAs.#1
stands at 9.23.IDBI bank has incurred major losses in the last few years due to its corporate NPAs
In the last seven years, the bank has written off bad loans worth Rs 46,000 crore.For the financial year 2021, IDBI Bank's gross NPA ratio
stood at 27.53 while its net NPA ratio stood at 1.97.The bank has been focusing on reducing its NPAs by recoveries and write-offs but its
NPAs have still not come down due to slow growth in advances.The bank's management has said that it expects around 4-5% reduction in NPAs
The transfer of bad assets to the government's bad loan bank will further reduce the NPAs by 5-6%.The bank is no longer subject to strict
lending curbs, which were imposed by the Reserve Bank of India (RBI) in May 2017.The private sector lender has been taken out of the prompt
corrective action (PCA) framework.PCA is a supervision tool initiated to help improve the overall performance of banks.#2 Indian Overseas
bank's high NPA ratios are also due to NPAs in the corporate segment
Around 40% of all corporate loans given by the bank are NPAs.Currently, only 44% of corporate loans are rated A or above while the rest 56%
are rated BBB or below by credit rating agencies.As of March 2021, the gross NPA ratio of Indian Overseas Bank stood lower at 11.69 while
The bank has been trying to reduce its NPAs using multipronged and focused recovery initiatives.The RBI has also taken Indian Overseas Bank
(IOB) out of the PCA framework on improvement in financial and credit profile.This decision gives the Chennai-based bank more freedom for
lending, especially to corporations and grow the network, subject to prescribed norms.IOB was placed under PCA in October 2015 on account of
high NPAs and a negative Return on Assets (RoA)
gross NPA ratio of 18.81 and 5 year net NPA ratio of 8.49.Just like the above two PSU banks, Central Bank's high NPA ratios are also due
to NPAs in the corporate segment.35% of total advances of the bank are corporate advances, followed by retail (27%), MSME (20%), and
agriculture (18%).For the financial year 2021, Central Bank's gross NPAs stood lower at 16.55 while net NPA were 5.77.The bank is
expecting resolution of certain big NPA accounts through NCLT under the Insolvency and Bankruptcy Code (IBC) and outside during the current
It plans to continue to focus on NPA recovery and improve its asset quality during the year.Central Bank of India is the last remaining
public sector lender under the RBI's PCA framework
However, it may see such restrictions lifted soon.The bank meets all the parameters for exiting the PCA framework and the RBI will remove it
18.62 and a 5-year net NPA ratio of 8.23.Its loan book demonstrates exposure to various industries such as infrastructure (22%), NBFC (20%),
basic metal (12%), construction (4%), food processing (4%), textile (3%), engineering (7%), and others.Retail advances account for 26% of
total advances of the bank, followed by MSME (26%), corporate and others (26%), and agriculture (22%).UBO Bank's asset quality, although
poor, has improved over the last couple of years
The bank's gross NPAs declined to 9.59 during the financial year 2021 while net NPAs came in lower at 3.94.The improvement in asset
quality was due to improved recoveries, upgradation of accounts and write-offs.Currently, 55% of the bank's loan book is rated A or above
by credit rating agencies while 32% is rated BBB or below
13% of the advances are unrated.The bank had been under the restrictions of Prompt Corrective Action (PCA) from March 2017.In September
2021, RBI removed the bank out of PCA on account of an improvement in asset quality, capital position and earning profile.#5 Punjab National
7.42.Corporate NPAs plague PNB as well
Corporate advances account for 48% of the loan book, followed by retail (18%), MSME (18%), and agriculture (16%).The bank's corporate loan
book has exposure to many industries
Industries with top exposure include energy (22%), roads - ports (15%), basic metals (15%), telecom (9%), textiles (6%), chemicals (5%) and
others.For the financial year 2021, PNB's gross NPAs stood at 14.12 while net NPAs stood at 5.73
The bank is targeting to bring down its NPAs during the ongoing fiscal year on the back of a recovery plan.The lender is expecting
recoveries to the tune of Rs 5,000 crore in the ongoing quarter from cases that are being resolved through National Company Law Tribunal
(NCLT) and otherwise, as well as small accounts.Of this, a recovery of Rs 1,000 crore is expected from NCLT cases and Rs 2,300 crore from
From small accounts, the bank is expecting a recovery of Rs 2,000 crore, taking the overall recovery to Rs 5,000 crore.PSU Banks vs Private
In fact, the next five banks with highest NPAs are also PSUs.Don't believe me? Take a look...Indian Banks with the Highest NPAsBank5 Yr
AvgGross NPA5 Yr AvgNet NPAGross NPAs(2020 - 2021)Net NPAs(2020 - 2021)IDBI Bank26.229.2327.531.97Indian Overseas
Bank19.229.8311.693.58Central Bank of India18.818.4916.555.77UCO Bank18.628.239.593.94Punjab National Bank14.957.4214.125.73Bank of
India14.845.6013.773.35Bank of Maharashtra14.577.157.232.48Union Bank of India13.956.3913.744.62Punjab - Sind Bank12.286.7513.764.04Bank of
above PSUs in the last five years.Take a look at the table below.The 5-year average gross NPA ratio and 5-year average net NPA ratios are
much lower than that of PSU banks
They are also far more profitable and lead their public sector counterparts in most other metrics.NPA Ratios of Indian Private BanksBank5 Yr
AvgGross NPA5 Yr AvgNet NPAGross NPAs(2020 - 2021)Net NPAs(2020 - 2021)HDFC Bank1.260.381.320.40IndusInd Bank1.860.742.670.69DCB
Bank2.351.124.092.29RBL Bank2.391.264.342.12AU Small Finance Bank2.501.364.302.20Kotak Mahindra Bank2.500.983.251.21Equitas Small Finance
is this just a mere coincidence?Unfortunately, no.Private banks have stricter lending norms and conditions
They are also more efficiently run.Meanwhile, PSUs have higher NPAs due to their liberal credit policies, loose terms and conditions of
loans, deficiencies in credit sanctions and disbursement of loans.However, this is expected to change going forward as the government plans
to clean up the books of these banks.With unpaid corporate loans at an all-time high in India, the government has set up a bad bank to
resolve such loans, paving the way for a major clean-up of the banking system.The new institution will take over bad loans from commercial
banks amounting to Rs 200 crore, a quarter of the total stressed loans in the country.While there is no direct capital infusion by the
government, it has mobilised capital from eight public sector banks (PSBs) - Canara Bank, Bank of Baroda, Punjab National Bank, Bank of
lenders plan to transfer at least Rs 50,000 crore of toxic assets to it by 31 March 2022.How this bad bank pans out remains to be seen
It is not a stock recommendation and should not be treated as such
(This article is syndicated from Equitymaster.com)
