PSU banks have reported high NPAs as compared to their private counterparts. The NPA has increased significantly from 2.3 % in March 2011 to 5.1 % in March 2015 for public banks while the private banks hover in the range of 1.8 – 3.0 %. Public sector banks which account for nearly 66 % of the country’s banking activity is paralysed with the problem of NPA’s. Of the 17 public sector banks which announced the results for the financial year 2014-15, the NPAs have been very high for around one-third of the banks which reported NPAs at upward of 6 %. Whereas Private Banks NPA’s levels are much lower than PSU Banks.
Given below is a snippet of some of the Private Banks NPA’s.
Source: Company Reports
In order to reduce the NPA’s the banks need to prevent slippage of accounts and also increase recovery by organising recovery camps for small accounts. Further, pro-active steps are required (including restructuring and compromising to recover part payment wherever possible. Further the banks should work on NPA lifecycle and use early warning systems (EWSs) to mitigate risk. It is important that right steps are taken in timely recognition of stressed assets and corrective remedial steps are taken to prevent the loss.
Following parameters will help banks keep a close watch on the accounts and its performance:
|Account performance parameters||Financial parameters|
|No. of days overdue||Fixed asset trend|
|Overdue frequency||Profitability trend|
|% of overdue amount in business turnover||Monthly turnover|
|Loan payment history||Debtor trend|
|Tax payment history||Creditor trend|
|Management||Changes in cycle (if any)|
Banks can adopt actions such as site visit for inspection, review of financial health every six month. Further, since the NPAs in agriculture is increasing (which is due to poor monsoon last year and unseasonal rains) it is recommended that the banks take into consideration financial health of farmers (including loans from unofficial sources) before disbursement. It is important to note here that success in achieving low NPA is dependent on identifying the triggers at the right time and taking corrective action.