Page 43 - Banking Finance November 2017

ARTICLE

NPA Position of Industrial Finance

The advances given by banks are called assets, which gen-
erate income via interests and instalments. Any asset that
stops generating income for the bank is a non-performing
asset (NPA). Typically, a loan is considered an NPA if the
repayment of the interest or principal amount remains over-
due for more than 90 days. The ratio of NPAs to total ad-
vances given by a bank is a commonly used indicator reflect-
ing the health of the banking system.

Subsequent to AQR (ASSET QUALITY REVIEW) by RBI, the
banking sector GNPAs showed a sharp y-o-y increase of 79.7
per cent in March 2016. Share of large borrowers' in total
loans increased from 56.8 per cent to 58.0 per cent between noted that imports and exports combined equal to around
September 2015 and March 2016. Their share in GNPAs also 40% of India's GDP.A hurt corporate sector is finding it dif-
increased from 83.4 per cent to 86.4 per cent during the ficult to pay loans. The ban in mining projects, delay in en-
same period. The GNPA ratio of large borrowers increased vironmental related permits affecting power, iron and steel
sharply from 7.0 per cent to 10.6 per cent during Septem- sector, volatility in prices of raw material and the shortage
ber 2015 to March 2016 and the increase was evident across in availability of power have all impacted the performance
all bank groups. In this respect, PSBs recorded the highest of the corporate sector. This has affected their ability to pay
GNPA ratio at 12.9 per cent. back bank loans, ultimately resulting these accounts as NPA
in the books of the Bank Accounts.
In the industrial sector GNPA ratio increased sharply to 11.9
per cent from 7.3 per cent between September 2015 and Internal Problems:
March 2016.Among the major sub-sectors within the indus- Y Indiscriminate lending by some state-owned banks dur-
trial sector, 'basic metal and metal products' accounted for ing the high growth period (2004-08) is one of the main
the highest stressed advances ratio as of March 2016 fol- reasons for the deterioration in asset quality and mount-
lowed by 'construction' and 'textiles'. On the other hand, ing NPAs in banking sector.
annual slippages of major sectors/sub-sectors show that the
Y Lack of rigour in loan appraisal systems and monitor-
textiles industry had the highest number of standard ac-
ing of warning signals at state-run banks. This is par-
counts slipping into the NPA category at 8.8 per cent, fol-
ticularly true in case of infrastructure projects, many of
lowed by the cement industry at 8.0 per cent.
which are struggling to repay loans. Besides, these
projects go on for 20 to 30 years.
Analysis of Causes of NPA in Industrial
Y Poor recovery by banks in recovering loans.
Finance:
Y The wait and watch approach of banks have been of-
Basically the whole problem can be divided into two parts -
ten blamed as the reason for rising NPAs as banks allow
External problems and internal problems which has resulted deteriorating asset class to go from bad to worse in the
stress in most of the industrial finance as faced by the banks.
hope of revival and often offer restructuring option to
corporate.
External Problems:
Apart from the slowdown in India, the global economy has Resolutions for Tackling NPAs of Indus-
also slowed down. This has adversely impacted the corpo-
rate sector in India. Continuing uncertainty in the global trial Sector:
markets has lead to lower exports of various products like Specific revival measures like SDR, 5:25, S4A have been
textiles, engineering goods, leather, gems etc. It can be devised by the regulator for restructuring of industrial fi-

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