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It is reported that Finance Minister Nirmala Sitharaman has claimed that public sector banks’ bad loans came down to ₹7.27 lakh crore at the end of September 2019. She claimed that this is on account of host of measures taken by the government to improve financial health of the banks in the country. She further said that the government has instituted comprehensive reforms in PSBs to improve governance, underwriting, monitoring and recovery and has leveraged technology in all aspects of banking, resulting in reduction in their non-performing assets.
On the face of it, this statement is a welcome one. However it needs deeper analysis, with all the facts and figures available in public domain, to understand the actual position. As it is, detailed data are available as on March 31, 2018, and March 31, 2019. The September 30, 2019, figures are available only partially. However, we can arrive at some conclusion based on the available data.
Not a big reduction
As on March 31, 2018, the public sector banks had NPAs of ₹8,95,601 crore. Addition during 2018-19 was ₹2,16,763 crore. Reduction (ie, recovery) was ₹1,33,844 crore, and the written-off amount was ₹1,83,391 crore. The closing figure as on March 31, 2019, was ₹7,39,541 crore (as per the RBI report on Operations and Performance of Commercial Banks dated December 24, 2019). As only the closing and opening figures include IDBI Bank figures, they may not tally.
Now, the Finance Minister claims that the NPA figure has come down to ₹7.27 lakh crore as on September 30, 2019. This figure can in no way be considered as a significant reduction from the ₹7.39 lakh crore reported by the RBI as on March 31, 2019
Even during 2018-2019, the actual recovery was less than the written-off amount. Writing off loans does not augur well for the soundness of public sector banks. It is a charge on the profit and loss account and it affects the bottomline of banks.
In another report by the RBI (Chapter II of Financial Institutions: Soundness and Resilience , dated December 27, 2019), it is revealed that the GNPA ratio of scheduled commercial banks remained unchanged at 9.3 per cent between March 2019 and September 2019, though the level of GNPAs increased marginally by 0.2 per cent during the same period. Though this figure is for all banks, there is nothing to conclude that PSBs have fared better.
Another RBI report ( Financial Stability Report , December 2019) states that PSBs’ profitability ratios were muted because of weak credit growth as well as slow resolution of NPAs.
What is revealed in this report is quite contrary to the recent press briefing by the RBI Governor, where expressed satisfaction over the performance of the banking sector, saying that bad loans, particularly of state-owned banks, have declined.
When the RBI has reported slow resolution of NPAs for muted profitability ratios, it is not clear how the government paints a rosy picture on NPA recovery by public sector banks. The recovery or reduction of NPAs during the first six months of the current financial year does not warrant any exuberance.
The statement of the Finance Minister that the host of measures and comprehensive reforms taken by the government to improve the performance of public sector banks has yielded results seems way too optimistic.
The writer is a retired banker
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