Concerns about rising bad loans have weighed on the stocks of most banks in recent months. The March numbers show that while new private banks have reported higher non-performing assets, PSU banks have actually seen a reduction in NPAs for the year. However, some of the PSU banks have resorted to restructuring a significant proportion of loans, as allowed by RBI, which the market has taken as a warning sign.
In 2008-09, ICICI Bank, HDFC Bank, Axis Bank and YES Bank have seen their gross non-performing assets as a proportion to their gross advances going up by 21-100 basis points. ICICI Bank has seen the sharpest increase in its gross non-performing asset (GNPA) proportion, more than one percentage point to 4.33 per cent. Higher exposure to retail borrowers in case of ICICI Bank and HDFC Bank has led to higher slippages.
In contrast to the rising trend in private banks' NPAs, leading government-owned banks showed fall in gross NPA proportion. Oriental Bank of Commerce has seen the sharpest decline in gross NPA (fall of 78 bps to 1.53 per cent), but Bank of Baroda, Central Bank of India, Indian Bank and Corporation Bank have also seen moderation in gross NPA ratio. A higher exposure to corporate credit and more conservative lending during a booming economy may have aided lower NPAs for some of these banks.
The NPA picture would have been worse but for the restructuring of some advances done by banks. Almost all the banks which have declared results thus far have restructured (allowed borrowers to postpone repayments) a portion of their advances, which will enable the banks to classify them as standard assets though there may be some delay in servicing of debt. In terms of the proportion of the total advances which have been restructured, Bank of India (3.4 per cent), Syndicate Bank (3.5 per cent) and Indian Bank (4.1 per cent) have seen the higher percentages. Others such as Bank of Baroda (restructured Rs 2,659 crore), Axis Bank, ICICI Bank and Corporation Bank have restructured Rs 996 crore, Rs 1,115 crore and Rs 1,043 crore respectively. This accounted for 0.5 to as much as 4.2 per cent of their advances.
The provision set aside for NPAs and other contingencies has seen a rise across all the banks irrespective of the ownership (government or private). Most of the banks have enhanced their provision coverage to shield their balance sheets from future adversities and have shown strong net NPA proportion. Provisions set aside by the banks increased by 30 per cent, which hit the overall profitability of these banks. Net profit growth for all the banks was 27 per cent where as the operating profit grew at 32 per cent for 2008-09.
Some banks such as ICICI Bank and Axis Bank have also changed their loan mix by consciously cutting down on retail lending and concentrating more on corporate lending. From the data available, the retail portion of ICICI Bank, Axis Bank, Bank of Baroda and Indian Bank's loan books have come down to 49 per cent (58 per cent in the preceding year), 20 per cent (23 per cent), 17.9 per cent (19.79 per cent) and 18.6 per cent (19.5 per cent) respectively.
HDFC Bank's retail advances (61 per cent) rose as a proportion of the total, but that was mainly due to merger of Centurion Bank of Punjab which was predominantly into retail lending.