Banks in India are in a tight spot as they see their performing assets turning into non-performing assets with divergence rates across the industry growing. As per a Reserve Bank report on Financial Stability, the revered authority noted that the gross non-performing ratio for all commercial banks could rise from 9.6% in March of 2017 to around 10.2% in March of 2018. This means that the overall health of the loans in the country would be sicker by over 10% within a few months.
The latest to fall prey to the divergence row is Axis Bank. The lender finds itself short of Rs. 5,600 crore under what the Reserve Bank of India found and what Axis bank reported its non-performing assets (NPAs) as. This is on top of their growing gross NPA which saw the total increase to Rs. 27,402 crore for the July-September quarter (2017) from a previous high of Rs. 22,031 crore in the April-June quarter of 2017.
Industry-Wide Reach of the NPA Troubles
All major banks, public and private such as IDBI, ICICI, and YES bank have also been affected by the dwindling quality of their assets. Under high market demands and ambitious expansive corporate strategies, the stressed assets in their watchlists have become more and more volatile. Slippage across banks is at worrying heights. As RBI clamps down on NPAs, all major banks are left in a lurch.
Worrying Signs of Upgradation of NPAs
Shareholder pressures and market realities have pushed some banks to reclassify some of their watchlist assets leading to the differences between RBI’s audited projections and the bank’s personal NPA ratios. While the back and forth in terminology stays strong, many banks have started restructuring bad loans by issuing advance loans to defaulters of stressed assets to upgrade the NPA back to a performing asset. Such practices have led to an erosion of the overall loan book quality of major banks across the country. Furthermore, slippage (performing assets turning to NPAs) outside the identified watchlist has increased.
Identification and Outsourcing the Only Solution
Recovery of NPAs after provisions are best left to experts well versed in the art of law and regulations. Willful defaulters, those that aren’t genuinely afflicted with a lack of alternate financial resources, are creating a hole in the system which affects both the unfortunate defaulters in dire need of the bank’s provisionary assistance, and the loan seekers that are searching for adequate financial support to further their dreams of their businesses. These people then are destined to suffer high-interest rates and harsher rules.
By outsourcing the recovery of NPAs to professionals, this hole in the banking system can be plugged. A healthier banking system is the backbone of a healthy business ecosystem and a booming economy.
References:
- Axis Bank Q1 result: The fat lady is yet to sing on bad loans – Livemint
- Axis Bank’s quarterly results show India’s bad loans problem is worse than banks are letting on – Scroll.in
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