Analysisofmajorsectors’shareinNPAsBigPie

CentreforFinancialAccountability

BigPie Analysisofmajorsectors’shareinNPAs

Authors:AnkitAgrawal&AnuradhaMunshiCover&Layout:JoeAthialy

CentreforFinancialAccountability,NewDelhi

August2017

info@cenfa.orgwww.cenfa.org

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Introduction

Indianbankingsystemisreelingunderseverecrisisduetotherampant,

mindlesslendingwithoutthoroughlycheckingtheviabilityoftheprojectand

badprovisioningnorms.

AccordingtotheleadingfinancialservicesagencyCreditSuisse’sIndiaCorporate

HealthTracker,thetotaldebtofIndiancompaniesstoodatRs14.5lakhcrorein

March2017.Theinabilityofcompaniestorepaythesedebtshasledtoamassive

NPAcrisisinthebankingsector.Thecrisisissobadthatthetotalpercentof

declaredNPAtotheirlendingisindoubledigitsformanybanks.Thetablebelow

showsthebankswithhighestNPAratio.

ThedatacompiledbytheMinistryofFinance,andreportedbythemedia,shows

thattheStateBankofIndiaaccountsforover27percentofthetotalamount

owedtopublicsectorbanksbycompanies.ThePunjabNationalBank'sshareisa

distantsecondwithjust13percent.

0 20 40 60 80 100 120

IndianOverseasBank(IOB)

IDBIBank

CentralBank

DenaBank

BankofIndia

PNB

OrientalBank

CanaraBank

IndianOverseas

Bank

(IOB)

IDBIBank

CentralBank

DenaBank

BankofIndia

PNBOrientalBank

CanaraBank

TotalLending%ofeachbank 100 100 100 100 100 100 100 100

%ShareofNPA 22.39 21.25 17.81 16.27 13.22 12.53 13.73 9.63

BankswithhighestNPAsasofMarch,2017

TotalLending%ofeachbank %ShareofNPA

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Though,thesedebtsarespreadacrossallthesectorslikeInfrastructureand

construction,Services,airlines,industrials,diversified,IT/Telecom,metals,

textiles,energy,agriculture,utilities,pharma,commercialrealestateetc.,outof

thetotalNPAof14.5lakhcroreinthefourthquarteroffinancialyear2016-17,

theshareofjustinfrastructureandconstruction,metals,andutilities,which

largelyconsistsofpower,was53percent.Thepiechartbelowshowsthedebt

shareofmajorsectors.

Source:CreditSuisse

InterestCoverage

Oneofthewaystovaluetoevaluateacompany’shealthisitsInterestCoverage

(IC),whichistheratioofitsoperatingprofittointerestexpenses,todetermine

howeasilyacompanycanserviceinterestpaymentsonoutstandingdebt.AnIC

ratioofoneormoreisasignofgoodfinancialhealthasitindicatesthatthe

companywillcoveritscostofdebtfortheyear.

AccordingtoCreditSuisse’slatestIndiaCorporateHealthTracker,acrosskeysectors,theshareofcompanieswithinterestcoverlessthanoneremainshigh.

Thetopthreesectorswithmaximumdebtinterestcoverlessthanoneare:

Sector PercentofdebtwithIC<1Power 70

Telecom 57

Steel 55

Infrastructure

20%

Utilities

17%

Telecom

12%

Metals

16%

Industrials

7%

Others

28%

SectoralbreakdownoftheCorporateDebt

Infrastructure Utilities Telecom Metals Industrials Others

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CreditSuisseestimatesthattheshareofdebtwithcompanieswithIC<1hasstayedhighat40%asofDecember2016.Moreover,35%ofdebtiswithchronicallystressedcorporates.AccordingtotheRBI,GrossNPAratioofthebankingsystemisat9.6percentandstressedadvancesratioisat12percentasofMarch2017.Inadditiontothese,CreditSusieestimatesthat4-8%oftheloansareparkedinvariousstressclassificationslikerestructured/SDRbutstandard.Theywarnthatasmostoftheseforbearancesexpireoverthenext12-18months,thecorporateNPAmayrise.

Source:CreditSuisseSectorwiseDataSteel:Whilesomeofthelargercompanies(TataSteelandJSWSteel)reportedaprofitinDecember2016,thestressedsteelcompaniescontinuetoreportlosses,withcompanieslikeSAIL,BhushanSteel,MonnetIspatandElectrosteelcontinuedtoreportlargelosses.Theaggregatenetlossforthesteelsectorfor3Q17wasoverRs2600crores.Power:AsofDecember2016,overRs1.267lakhcroresofdebtiswiththestressedpowerprojects.Stresswithinthepowersectorcontinuestorise,asmostofthelargercompaniessawnetincomedeclineby13%fromthepreviousyearand18%fromthepreviousquarterandnetprofitfallingby7%and34%respectively.

17

4

23

8 6 3

17

26

0

0 0 3

ICICI Axis PNB UnionBank BankofBaroda

SBI

RecognitionofNPAinPowerSector

PowerSectorShare(%) Watchlist(%)

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WithintheoverallcorporatedebtofRs1.267lakhcroresinthissector,thecoal-

basedpowerplantsconstitute79.64percentoftheentiredebt.Theremaining

debtiscreatedbythegas-basedpowerprojects.

Asprofitabilityremainsmuted,theshareofdebtwithIC<1increasedto67%in

December2016versus63%inSeptember2016,withRs3.8lakhcroresofdebt

nowwiththecompanieshavingIC<1.Mostofthelargercompanieshaveseen

interestcoverdeclinethisquarter,withIC<1forcompaniessuchasReliance

Infra,JPPower,RattanIndia,AdaniPower(despitecompensatorytariff's)Tata

PowerandJSWEnergy.

ShareofpowersectordebtwithIC<1

Despitethemountingandlowprofitabilityinthepowersector,asofMarch

2017,thetotalimpairedloans,i.e.,theloanswhicharefullyrecoverable,

inthesectorwasat17percent,theunrecognizedstressedloanswereat14per

cent,andstandardloansat70percent.Thisonlypointstothelowrecognitionof

NPAsinthepowersector.

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CrisisattheDoorstep

ItisestimatedthatIndianbanksneedaminimumofRs.86,000croresof

provisionsonexistingNPAsoverthenext12monthsasregulatoryprovisions

arebasedonoldnon-performingloans.Besidesmanyprivatebankshad

previouslyunder-reportedtheloanstokeepthevalueoftheirshareshigh.RBI

hadfoundmassiveunderreportingbyYesBank,AxisBankandICICIinthetune

ofthousandsofcrores.

WhilethetaxpayerswillhavetosharetheburdenofNPAsandrefinancingofthe

loans,duetothemassivecashdepositedinthebanksduetothedemonetization,

thebankshavetoshelloutmoreinterestonthesavings.Thelowerfinancingof

newloansduetothevolatilemarket,highunemployment,andslowdownofthe

globalandlocaleconomyhasmadethesituationprecarious.

Asalastresorttopreventtheimplosion,bankslikeSBI,CanaraBank,etc.have

reducedtheinterestratesonthesavingaccountandhikedchargesforvarious

servicesofferedandminimumbalance.Thusagain,chargingthepoorandthe

middle-class.

___________________________________

Source:VariousdocumentsoftheRBI,MinistryofFinance,Parliamentarydebates,Credit

Suisse,CareRatings,Filingsbybanks,andvariousmediareports.

21%

10%

3%

17%

49%

%shareoftotalRestructuredLoans(Rs.2000billion)

Power Steel Textile OtherInfrastructure Others

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