The asset quality of the banks has improved remarkably

The asset quality of the public as well as private sector banks has improved remarkably on back of the strong economic growth and prudent provision policies during last financial year even as the period saw successive hikes in interest rates and robust credit growth, according to Associated Chambers of Commerce and Industry of India (ASSOCHAM).

The net non-performing assets as a proportion of net advances for 27 scheduled commercial banks have reduced by average 14 per cent during fourth quarter of fiscal 2006-07 as compared to the corresponding period of the last year, according to ASSOCHAM Eco Pulse Study (AEP) on `Financial performance of Banking Sector in the 4Q of Fiscal 2006-07.

Federal bank, South Indian Bank, Union Bank of India are top NPA managers with 53 per cent, 47 per cent, 38 per cent decline in their net NPAs. Dena Bank and Central Bank have immensely improved their asset management as their ratio of net non performing assets to net advances have come down from the peak of 3.04 per cent and 2.59 per cent in fourth quarter of FY2006 to 1.99 per cent and 1.7 per cent in same period of FY2007.

Improved industrial climate, economic buoyancy, better recovery climate, prudent policies followed by banks regarding provisions for NPAs have helped the banks in reducing their burden of bad loans and advances.

ICICI Bank has recorded the maximum increase of 38 per cent in its net NPAs from the previous level of 0.71 per cent of net advances to 0.98 per cent in fourth quarter of FY07. Bank of India (28 per cent), Allahabad Bank (27 per cent) and IDBI (10 per cent) are among the other banks with rising non performing assets as per the study done by ASSOCHAM.

Gross non-performing assets for the fourth quarter stood at Rs.32, 976 crore compared to Rs.34, 323 crore previous year as reported by the 21 banks in their financial statements. Their net NPAs have reduced from Rs. 13,437 crore to Rs. 12,752 crore in past twelve months.

“As a result of better monitoring of the credit portfolios and healthy macro economic performance, majority of the banks have managed to reduce their loans repayment defaults despite high interest rates and strong growth in credit disbursement ”, said ASSOCHAM.

Also, RBI had increased the general provisioning requirement on standard advances in specific sectors, i.e., personal loans, loans and advances qualifying as capital market exposures, residential housing loans beyond Rs.20 lakh and commercial real estate loans from 0.40 per cent to 1.0 per cent applicable from the FY2006-07. Increase in provisioning requirement also contributed towards improvement in net NPA level of majority of the commercial banks.

According to ASSOCHAM study, the top lines as well as the bottom lines of the banking companies have recorded an impressive growth of 72 per cent and 68 per cent. The commercial banks in public sector have outplayed their counterparts in private sector, as their total income and net profit grew by 78 per cent and 49 per cent in the reported quarter as compared to 60 per cent and 45 per cent growth of new private banks.

State Bank of India, the largest bank in the country, has come out as the star performer with 75 per cent increase in its net profit. On the other hand, net profit of the second largest bank and biggest private bank, ICICI has grown by mere 4.4 per cent.

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