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Causes of Rising NPAs in PSBs

Rising NPAs in recent years can be attributed to the effects of the global recession and domestic economic slowdown negatively impacting corporate and SME performance and credit quality. PSBs saw greater increases compared to private banks due to larger shares of corporate loans in their portfolios. A shift to system-based over manual NPA recognition also contributed to higher reported NPAs at PSBs. Infrastructure, iron and steel, textiles, aviation and mining were identified as particularly stressed sectors that PSBs had high exposure to. Increases in bank NPAs were mainly due to the NPA recognition system change, economic slowdown, and past aggressive lending, especially during good times. As PSBs dominate Indian banking, improving their

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5 views1 page

Causes of Rising NPAs in PSBs

Rising NPAs in recent years can be attributed to the effects of the global recession and domestic economic slowdown negatively impacting corporate and SME performance and credit quality. PSBs saw greater increases compared to private banks due to larger shares of corporate loans in their portfolios. A shift to system-based over manual NPA recognition also contributed to higher reported NPAs at PSBs. Infrastructure, iron and steel, textiles, aviation and mining were identified as particularly stressed sectors that PSBs had high exposure to. Increases in bank NPAs were mainly due to the NPA recognition system change, economic slowdown, and past aggressive lending, especially during good times. As PSBs dominate Indian banking, improving their

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username0210
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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REASONS FOR GROWING NPAs IN THE CURRENT PERSPECTIVE The rising NPAs

in recent period can attributed to the affects of the global recession coupled with
internal factors like the slowdown in the domestic economy which had adversely
affected the performance of corporate as well as small and medium enterprises leading
to a negative impact on credit quality. The asset quality of PSBs aggravated in
comparison to private sector banks as big ticket corporate loans form a larger share of
the credit portfolio for PSBs. Data available with the Finance Ministry showed that thirty
companies together owed Rs.16,877 crore as on September 30, 2013 to Public Sector
Banks (for details see Annexure-III).
Another reason for sudden rise in gross NPAs of PSBs was reported to be on account of
a shift to a system based recognition of NPAs from a manual one. Prior to 8
this the computation for most banks was worked out manually at branch level and was
therefore subject to discretion of managers12. The RBI in its Financial Stability Report, December
2013 has indentified five sectors - Infrastructure, Iron and Steel, Textiles, Aviation, and Mining -
as the stressed sectors. PSBs have high exposures to the industry sector in general and to such
stressed sectors in particular. Increase in NPAs of banks is mainly accounted for by switchover
to system-based identification of NPAs by PSBs, slowdown of economic growth, and aggressive
lending by banks in the past, especially during good times. As PSBs dominate the Indian Banking
Sector and increase in the NPAs of PSBs is matter of concerns, steps are being taken to improve
the situation.

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