Foreign banks leave domestic banks way behind in cutting NPAs

New Delhi, Apr 21 (UNI) Foreign banks operating in India have given domestic banks a run for their money, in reducing the level of Non-Performing Assets (NPAs) both in gross and net terms, an ASSOCHAM study said today.

Private sector banks have retained the second best position in 2005, according to the study conducted by the Associated Chambers of Commerce (ASSOCHAM).

Regarding the hallmark performance related to a substantial decline in NPAs, foreign banks were the top performers, the Eco Pulse study said.

After a continuous rise in NPAs for two consecutive years, foreign banks have slashed their gross NPAs by 32 per cent in 2004-05 as against a rise of 4 per cent and 2 per cent in 2002-03 and 2003-04 respectively, followed by private sector banks which registered a decline in their NPAs by 30 per cent in 2004-05 as against a decline of 21 per cent in 2003-04.

Public sector banks recorded a decline of 8 per cent in 2004-05 from 4 per cent in 2003-04.

In addition to gross NPAs, the Foreign Banks also showed a significant improvement in reducing their net NPAs by 38 per cent in 2004-05 on a year-on-year basis, in comparison to 2 per cent in the corresponding period last year.

The private sector banks reduced their net NPAs by 18 per cent in 2004-05 as against a sharp decline of 52 per cent in the year 2003-04.

''It goes to the credit of the banks that they have improved their asset quality despite aggressive growth in their advances, particularly in the retail sector,'' ASSOCHAM President Anil K Agarwal said.

Among the Scheduled Commercial Banks (SCBs), Foreign Banks have topped the list in providing the cushion of provisions against NPAs. These banks' cushion against NPAs was the highest in March 2005, constituting 63 per cent of gross NPAs.

However, the public sector banks' cumulative provisions as a percentage of Gross NPAs was the second highest followed by old and new private sector banks.

A significant improvement in recovery of the NPAs, combined with a sharp increase in gross loans and advances for SCBs, led to a sharp decline in gross NPAs to gross advances ratio to 5.2 per cent in March 2005 from 7.2 per cent in March 2004.

The decline was evident across all bank groups, with the Foreign Banks taking the lead, at the lowest ratio of 2 per cent in the year 2005, as against 4 per cent in the previous year.

The new private sector banks followed the Foreign Banks, in reducing gross NPAs to gross Advances ratio to 3.6 per cent from 5 per cent and Private Sector Undertakings (PSUs) banks registering a decline to 5.7 per cent.

The net NPAs to net Advances ratio was the highest in respect of public sector banks at end-March 2005 followed by private sector banks and foreign banks.

Gross NPAs of SCBs declined by Rs 6,485 crore between end March 2004 and end March 2005, indicating that the recoveries of NPAs have exceeded additions implying that, incremental NPAs, both in gross and net terms, have turned negative, thereby strengthening their repayment capacity.

The Asset Reconstruction Corporation of India (ARCIL), provided a major boost to the Banks' effort to set off their NPAs.

During 2004-05, several banks sold the NPAs to the ARCIL to the extent of Rs 15,343 crore, while FIs sold their NPAs worth Rs 837 crore, Public Sector Banks Rs 5,504 crore, Old Private Sector Banks Rs 237 crore and New Private Sector Banks Rs 8,765 crore in March 2005.

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