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A glance at the March 2014 quarter results of banks indicates an improvement in asset quality with several lenders reporting a sequential drop in gross non-performing assets. State Bank of India, for instance, saw a 9.1% sequential fall in gross NPAs to R61,605 crore in Q4FY14.
“As we mentioned earlier, we have set up special committees to look after accounts that are showing stress but are not necessarily NPAs, and these (committees) have worked well,” said SBI chairman and managing director Arundhati Bhattacharya.
At the end of fiscal 2014, gross NPAs of the 40 listed banks stood at R2,50,715 crore, down 0.5% from the December quarter.
“We have already seen some improvement in new slippages among our PSU coverage (with the exception of PNB), down to 4.5% in 4QFY14 from a peak of 9.2% in Q4FY12. We expect new stressed loan formation to fall consistently over the next few years to 2% in FY18, similar to the bottom of 2% in FY08,” said global investment bank Goldman Sachs in a report.
The report added that while the drop would likely be more pronounced for PSU banks, it should be modest for private banks, given the low base and some natural delinquency in the usual course of business.
Gross NPAs of another public sector bank, Bank of Baroda, at the end of the March quarter fell 0.41% to R11,875.9 crore. The bank’s chairman & managing director SS Mundra said: “Even though our NPAs have increased on a year-on-year basis, this is the slowest addition to incremental NPAs in the industry. So, we believe slippages and NPAs are beginning to improve with the expected improvement in the economy.”
While asset quality may be improving, business is still dull. Given that the pipeline of projects is virtually empty, lenders have seen few opportunities to grow their project finance portfolios. On the advances front, private sector banks have seen better growth than public counterparts; while private banks saw a credit growth of 17.94%, public sector banks witnessed a 14.71% credit growth. “We expect a growth of 18-20% on the loan book front. In project financing, we are not really experiencing any uptick in loans,” said Bank of India chairman & managing director VR Iyer.
Starved for quality assets, a host of banks have been resorting to rate cuts in a bid to attract top-quality corporate customers, the outcome of which has been reflected in the corporate credit growth seen