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Study reveals rise in banks’ NPAs

KOCHI: If non-performing assets (NPAs) and capital adequacy ratio (CAR) reported by commercial banks are an indication of the financial strength, the second quarter results of the Indian banking sector do not project a healthy picture. The net non-performing assets has risen by an average 24 per cent while capital adequacy ratio was down by 2 percentage points in the second quarter of current fiscal as compared to the corresponding period last year, according to an ASSOCHAM study.

The study titled ‘Solvency Analysis of the Indian Banking Sector’ reveals that 25 public sector and commercial banks, on an average, have registered a 24 per cent rise in net NPAs during the second quarter of the financial year against the corresponding quarter of the previous financial year. The average CAR of the banks slipped to 12.68 per cent from 13.41 per cent in the previous year.

The analysis of the Indian banking sector was based on the quarterly results posted by 25 Indian banks on Bombay Stock Exchange from October 20 to 29, 2008. Of the 25 banks, 15 were public sector banks and 10, private sector ones. The analysis of the Indian banking sector’s solvency is based on two broad parameters including net non-performing assets and capital adequacy ratio.

Although the Indian banking sector has remained insulated from the global financial crisis, the emerging trends as found in the study do not give positive signals, according to ASSOCHAM.

As per the study, the aggregate net NPA of 25 banks increased by 24.36 per cent to Rs.17,522.82 crore in the second quarter of 2008-09 from Rs.15,462.84 crore in the same period of previous financial year. Karur Vysya Bank recorded maximum rise of 275.36 per cent in net NPAs with Rs. 50.03 crore as against Rs.13.33 crore last year. It was followed by HDFC bank with an increase by 139 per cent, Vijaya Bank by 132 per cent, State Bank of Hyderabad by 81.42 per cent and IDBI by 57 per cent.

In contrast, several major public sector banks recorded a significant decrease in net NPAs, including Central Bank of India (-87.39 per cent), Oriental Bank of Commerce (-82.18 per cent), Union Bank of India (-73.38 per cent), Dena Bank (-17.24 per cent). Out of the 25 banks posting their results for the quarter ending September 2008-09, it was found that 16 banks witnessed a fall in their CAR from the previous fiscal, but they still managed to remain above the prescribed limit of nine per cent posed by the Basel II accord.

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