Analysisofmajorsectors’shareinNPAsBigPie
CentreforFinancialAccountability
BigPie Analysisofmajorsectors’shareinNPAs
Authors:AnkitAgrawal&AnuradhaMunshiCover&Layout:JoeAthialy
CentreforFinancialAccountability,NewDelhi
August2017
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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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