The Hindu Business Line : ‘Banks cautious on weak borrowers as NPAs rise’

Alarm bells ringing
SBI’s bad loans at Rs 10,760 crore is highest in 14 quarters.
HDFC Bank, ICICI Bank also face rise in NPAs.
Assessment significant in the context of US sub-prime crisis

Mr Keki Mistry

Our Bureau

Mumbai, Sept. 7

Banks in India are becoming cautious about lending to weak borrowers, says India Knowledge @ Wharton, an online resource centre for information on India-related issues at the University of Pennsylvania, quoting industry experts.

The online resource centre quoted data on provision for non-performing assets made by banks in the first quarter of fiscal 2007-08 which it says are higher than similar provisions made the same time last year and cautions that it could go up further.

It referred to State Bank of India (SBI)’s performance which saw gross NPAs rise to Rs 10,760 crore as on June 2007 from Rs 9,720 crore in June 2006, a level that it says is the highest in the last 14 quarters. The bank had also substantially hiked (161%) its provision for such NPAs at Rs 538 crore in June 2007, it further said.

Citing assessments of research arms of securities broking outfits owned by Citigroup and Macquarie Bank, the online centre further said that leading private banks such as HDFC Bank and ICICI Bank too are likely face a rise in NPAs and provisioning for loan losses.

Leading cause

Identifying consumer loans as the leading cause of rising loan losses, it highlights certain structural factors underpinning the bad loan growth.

Quoting Mr Keki Mistry, the Managing Director of Housing Development and Finance Corporation, it said that a surfeit of lending is the outcome when there is an air of ‘feel-good’ in the environment, markets are buoyant and excessive optimism reigns and customers are misguided into overstretching themselves. The race for market share among banks who feel compelled to justify the high market capitalisation also contribute to a phenomenon of rising bad loans, it further said.

‘Distressed assets are primarily the result of the loan provider choosing a poor credit risk - you either lend money to someone who should not have been loaned any money or lend more than you should have’, it quoted Mr Dipak Gupta, Executive Director at Kotak Mahindra Bank, as saying.

Significance

India Knowledge @Wharton’s assessment on the bad loans situation in the India financial sector has been placed by it in the context of the US home loan crisis in the ‘sub-prime’ category which manifested all too suddenly even as the US economy was growing at a fair clip and consumer and business confidence was generally good.

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