Bad loans of FIs soar by 11.89% to Rs 18,146 cr

Bad loans of FIs soar by 11.89% to Rs 18,146 cr
ENS ECONOMIC BUREAU

MUMBAI, NOV 26: While non-performing assets (NPAs) -- or bad loans -- of commercial banks have crossed the Rs 60,000 crore mark, financial institutions in the country have not lagged behind. NPAs of ten leading institutions (including IDBI, ICICI and IFCI) have reported a rise of 11.89 per cent, or Rs 1,929 crore, to Rs 18,146 crore during the year ended March 2000 from Rs 16,217crore last year.

The steep rise in NPAs has come at a time when Finance Minister Yashwant Sinha recently expressed his `happiness' over the progress on the loan recovery front. Including the FI figures, the total NPA of the system amounts to a whopping Rs 80,000 crore. The recovery of this amount is sufficient to cover India's fiscal deficit.

According to the Reserve Bank's `Report on Trend and Progress of Banking in India', IDBI topped the NPA list by notching up bad loans worth Rs 7675 crore by March 2000. In fact, its NPAs have gone up by Rs 1,185 crore from Rs 6,490 crore in the previous year. IFCI followed with NPAs of Rs 4,103 crore, but it reported fall of Rs 134 crore from the previous year's level ofRs 4,237 crore. ICICI's NPAs went up to Rs 3,959 crore from Rs 3,623 crore in the previous year, as per the RBI figures.

However, FIs had resorted to large scale loan reschedulements, interest waiver and bail-out packages in the last two years. "This is beneficial to both the FIs and borrowers. While FIs can report a smaller amount as NPAs, borrowers (mostly big corporate houses) can avoid their names in the NPA list," said a former IDBI official, adding, "had FIs included bail-outs and reschedulements, the NPA figure would have gone up further."

A major chunk of NPAs are accounted for loans to the priority sector which include entrepreneurs involved in agriculture, small-scale industry and those who are not able to generate their own finance to invest intotheir ventures. If a borrower does not return its interest and the principal amount even in instalments for two quarters of the stipulated time it is termed as NPA.

According to the RBI report, the net NPA to net loans ratio of IDBI has gone up from 12 per cent to 13.4 per cent. ICICI's ratio came down marginally from 7.8 to 7.6 per cent and IFCI from 20.8 to 20.7 per cent.

In a study on NPAs last year, the RBI itself had admitted that diversion of funds by promoters for expansion, modernisation, setting up of new projectsand to sister concerns is mainly responsible for the rising NPAs in the banking system. This is the first time that the RBI was officially admitting that fund diversion by promoters as the major factor which pushed up NPA levels. The RBI study which covered the top 50 NPAs of 33 banks (including 27 public sector banks and top six private sector banks) as on March31, 1997, had also blamed government policies, import duty changes, deregulation and weak credit appraisal skills among other reasons for the rise in NPAs in the banking sector.

FI funds were diverted in the 1993-96 public issue boom period when a host of companies raised funds to set up new projects. "Many of these projects are lying unfinished. Several promoters who took loans from banks and FIs have vanished. Further, the economic downturn in the 1986-88 period also contributed to the NPAs,'' bankers said.

Apart from funds diversion by promoters, the other reasons for NPAs were listed by the RBI study are: time/cost overrun while implementing the project, external factors like raw material shortage, raw material/input price escalation, power shortage, industrial recession, excess capacity, natural calamities, business failure like product failing to capture the market, strike/strained labour relations, wrong technology, technical problems and product obsolescence, failure, non-payment/overdues inother countries, recession in other countries, externalisation problems and adverse exchange rate, wilful default, siphoning of funds, fraud, misappropriation and promoters/management disputes.

The regulator further said that NPAs were in a cross-section of industries such as ferro-alloys, man-made textiles, real estate/ civil and projectrelated construction, pharmaceuticals, leather/good export, garment export, fertilisers and chemicals, cotton, tea/coffee, jute sugar, jewellery and steel.

"The balance sheet growth has disguised NPAs, which have increased in absolute terms. A slowing economy, depressed demand and greater competition flowing from liberalisation is having a deleterious effect in anumber of key industries, including steel, petrochemicals, textiles, paper and cement,'' said a Standard & Poor's study on bad loans in India. Consequently, impaired assets and charges for bad and doubtful debts of Indian banks and financial institutions are expected to continue to rise,constraining profitability and internal capital generation in the medium term.