• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

N.S. Vageesh

CHENNAI, July 11

A COUPLE of weeks ago, the Wall Street Journal ran a story about how investors in the US were uneasy because the Citigroup Inc had fewer reserves set aside against non-performing assets than any other comparable major bank.

Many analysts considered the reserve level as not very comfortable and this was said to have contributed to the poor performance of its stock. The headline in the story, in fact, asked `Is Citigroup set for a rainy day?'. You might be forgiven for wondering whether Citigroup was the next on the crisis jump-board.

But wait a minute. Just remember that its reserve protection against non-performing assets was at 101 per cent of the non-performing loans. That was "low" when compared to other banks such as JP Morgan Chase, which had a coverage ratio of 116 per cent or Bank of America which had a coverage ratio of 138 per cent, or for that matter, the average for 24 large banks which was at 161 per cent.

Now, turn the focus on to Indian banks. Those investors who were merely uneasy with Citigroup might get the jitters if they saw the numbers here. The average provisioning cover that public sector banks have against their gross non-performing assets was at 43 per cent as of end March 2002. Banks such as Corporation Bank, Andhra Bank, had relatively higher proportion of provision cover at nearly 55 per cent. And there is Canara Bank at the lower end of the scale with just 26 per cent cover for its gross NPAs.

Comparatively speaking, the new private banks such as HDFC Bank, IDBI Bank and ICICI Bank are on relatively better wicket on this parameter. HDFC Bank, for instance, has maintained its NPA provision cover at around 85 per cent, while ICICI Bank has increased it to 63 per cent last year. IDBI Bank also increased its provision cover to 54 per cent in 2002 from 36 per cent in the previous year.

Mr Cherian Varghese, Chairman and Managing Director, Corporation Bank, says that Indian banks have generally been prudent in provisioning practices. "The prudential regulations are tighter here in India. We are not as bad as it is made out to be. For instance, we do not consider the value of the security we hold, while making provisions". Point taken. But the security has to be enforceable.

Something that banks have found difficult to do, necessitating the promulgation of an ordinance on the subject recently.

Investors will be watching to see how banks use this new instrument before accepting the adequacy of the provision cover.

Send this article to Friends by E-Mail

Stories in this Section
Re range-bound; gilts up

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line