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Mutual Funds: What Are Npas?
Mutual Funds: What Are Npas?
Mutual Funds: What Are Npas?
risks, but what about fixed deposits? While caution is thrown to the wind
when talking mutual funds or the stock market, banks are considered to be a
safer destination for parking one’s wealth.
Fiduciary trust, the underlying basis on which finance works, grants that
money deposited in a bank is shielded from the vagaries of the market. The
principal can be withdrawn, along with the interest accumulated over time.
However, that could be about to change given the passing of the Financial
Resolution and Deposit Insurance (FRDI) Bill, which is pending before a
Standing Committee of Parliament.
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The Financial Stability Report, 2017, released by the RBI, states that
India’s gross NPAs stands at 9.6%. This figure is the sum total of all
stressed assets held by lending institutions in the country including co-
operatives and small banks in addition to government and private banks. India
has the second highest ratio of NPAs among the major economies of the
world. Only Italy, with 16.4% NPAs has more stressed assets. China, whose
economic growth is largely fuelled by borrowings, has only 1.7% NPAs
according to the International Monetary Fund (IMF) Soundness Indicators.
However, despite the large quantum of stressed assets, India’s NPA problem
is not comparable with debt-ridden countries like Greece and Ukraine
which have 36.3% and 30.5% NPAs.
The RBI’s Financial Stability Report names the basic metals and cement
industries as the most indebted, with 45.8% and 34.6% stressed assets
respectively. Despite the recent GDP numbers which point to lukewarm
growth, the metals industry continues to be hamstrung by slow demand and
cheaper imports. The construction, infrastructure and automobile industries
also account for a sizeable chunk of banks’ NPAs.
These numbers present a slight variance with that estimated by credit rating
agencies since the methodology adopted by banks for classifying their assets
vary. According to the rating agency CARE, as of June 2017, State Bank of
India leads the list of scheduled banks with the highest NPAs with
Rs.1,88,068 crores of stressed assets. Punjab National Bank and IDBI Bank
follow suit with Rs.57,721 crores and Rs.50,173 crores of gross NPAs
respectively.
However, among Indian banks, IDBI Bank, which has 24.11% gross NPAs
tops the list for lending institutions with the highest exposure to liabilities.
Indian Overseas Bank has 23.6% NPAs while fellow private lenders like
Kotak Mahindra Bank and HDFC fare better with only 2.58% and 1.24%
gross NPAs. State Bank of India, which is saddled with most stressed assets
in absolute terms, has a gross NPA ratio of 9.97%.
It should also be noted that India’s bad loans problem could hold economic
growth to ransom. Data collected by the Ministry of Statistics and Programme
Implementation (MOSPI) and compiled by the World Bank reveals
that economic growth tapers off with a spike in the bad loan ratio. While
economic output has been laggard over the past few quarters owing to
disruptive policies such as demonetisation and the implementation of the
goods and services tax (GST), the lacklustre performance of India Inc has
pulled down banks with greater defaults from corporate clients. The gross
NPA ratio has spiked from 5.884% in 2015 to 9.6% in 2017 while economic
growth has slumped in the corresponding period.
The SARFAESI Act empowers banks to auction assets or properties that were
submitted as collateral while sanctioning loans. Under this Act, 64,519
properties were seized in 2015-16. However, the value of recovered assets
constitutes only a tip of the NPA iceberg.