The Hindu Business Line : Clean-up drive by public sector banks

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Clean-up drive by public sector banks — NPA proportion set to drop in 2004-05

N.S. Vageesh
Suresh Krishnamurthy

BANK balance sheets seem set to wear a squeaky clean look at the end of the current fiscal. The clean-up drive initiated by the public sector banks is set to culminate in a number of them reporting zero net non-performing assets (NPA) in 2004-05. A few have done so in the recently ended fiscal itself.

NPAs for banks are loans gone sour. Either interest or principal payments have been outstanding on these loans for more than 90 days. However, the term "Zero net NPAs" does not mean that these loans have been recovered. But they simply indicate that capital or profits has been set aside as a cover for these bad loans. Banks have been able to enhance provisions for bad loans because of windfall profits that a plunge in interest rates bestowed on them.

Four banks have already achieved the ideal `Zero net NPAs' for the fiscal ended March 2004. The Oriental Bank of Commerce did this in 2003, while State Bank of Indore, State Bank of Saurashtra and State Bank of Patiala, the three unlisted associates of State Bank of India have reported `Zero net NPAs' for 2003-04.

At least eight banks are in a position to report zero NPAs in 2004-05 ceterus paribus. That is to say, other things remaining the same — the existing growth rates in lending as well as their existing provision cover for bad loans and no new nasty surprises.

Among the banks which can report such zero NPA numbers are Allahabad Bank, Andhra Bank, Punjab National Bank and Vijaya Bank, besides the four associate banks of SBI. Four others would report NPAs of substantially below 1 per cent.

Understandably bankers are not overly enthused by the turn of events and play down the significance of zero NPAs. Mr R.V. Shastri, Chairman and Managing Director, Canara Bank, did not attach any deep meaning to zero net NPAs.

"It only means that the provision cover is 100 per cent. But that is a utopian ideal. For Canara Bank, the provision coverage levels are about 70 per cent and will rise to more than 75 per cent plus in 2004-05. I would be happy if coverage for bad loans is maintained at that level" he said.

Mr Cherian Verghese, Chairman and Managing Director, Corporation Bank, said, "Zero net NPAs is only one of the multiple goals that the bank is trying to achieve. It would be better if bad loans are reduced through recoveries and upgrades rather than through increased provision cover."

Echoing similar sentiments, Mr S.C. Gupta, Chairman and Managing Director, Indian Overseas Bank, said, "Reduction in bad loans through increase in recoveries should be the primary goal.

But banks are doing a good thing by not squandering the profits from sale of investments but using it to raise provision coverage for bad loans."

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