Little success for banks on NPA resolution until Q2 but better results likely by March

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26 Aug, 2025 12:21

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The push for bad loan resolution has seen little success so far. However, it does hold promise to improve the asset quality for the banking sector by the end of March 2019.

Net non-performing assets (NPAs) for 36 banks reduced by Rs 18,921 crore in the three months from July to September. During the same period, gross NPAs reduced by a mere Rs 5,870 crore.

However, over the last one year, net NPAs have risen by Rs 13,453 crore while gross NPAs have risen by Rs 1.41 lakh crore to Rs 8.72 lakh crore as at September 2018 end, as per data collated by Moneycontrol.

The numbers are based on the second quarter financial results of 36 banks including public and private sector lenders.

“The emerging trends in the movement of NPAs when viewed along with the provisions made by banks do indicate that the NPA cycle may have peaked and that the recognition issue has by and large been addressed. This is evidenced from the declining NPA ratios for most banks,” said a report by Care ratings.

Posting a profit after a consecutive loss in the last three quarters, State Bank of India (SBI), country’s largest lender, reduced its gross NPAs by nearly Rs 7,000 crore while its net NPAs declined by Rs 4,400 crore.

Its gross NPAs stood at Rs 2.06 lakh crore (9.95 percent of total loans) as on September end from Rs 2.13 crore as on June end (10.69 percent).

“NPA resolutions have started to happen since the recognition of bad loans and Insolvency and Bankruptcy Code (IBC) law implementation has picked up. So hopefully, going forward, the asset quality should start looking better from here on. Banks are also growing their balance sheet which would also show improvement in the percentage ratios for the NPAs," said Karthik Srinivasan, Senior Vice President of ICRA Ratings.

We believe FY20 will be “the year of happiness”, SBI Chairman Rajnish Kumar said after the FY18 financial results.

In the current market situation, Kumar considers SBI in the best position to seize the opportunity.

NPA ratios

As per the Care report, “The NPA ratio peaked in Q4-FY18 at 10.16 percent which was when the highest quantum of NPAs was recognised. There has tended to be some moderation subsequently and in Q2 was down to 9.41 percent,” Care report said.

In the case of eight banks, the ratio for Q2 was lower than that of Q1. In a different set of eight banks, the ratio still appears to be in an upward direction. “Here the next two quarters will again be important to gauge whether or not whether the NPA ratio has peaked,” the report said.

It highlighted that HDFC Bank, IndusInd Bank, Kotak Bank and Ratnakar Bank have the lowest NPA ratios which have been under control and could decline over the quarters.

Only two public sector banks (PSB) have gross NPA ratio of less than 10 percent; Vijaya Bank with 5.86 percent and SBI which is on the border at 9.95 percent.

Half or six of 12 banks have witnessed lower ratios in the last two quarters. These include SBI, Andhra Bank, Canara Bank, Indian Overseas Bank (IOB), Punjab National Bank and Vijaya Bank. This is a positive for the PSB group, Care report said.

The improvement in banks, especially public sector ones, is largely attributed to the sudden upsurge in the NPAs in the last 2-3 years to the recognition aspect after the asset quality review (AQR) of banks undertaken under the leadership of former Reserve Bank of India (RBI) Governor Raghuram Rajan in December 2015.

“It was widely believed that the NPA level had peaked in March 2018. Subsequently, there was a tendency for the ratios to show some moderation. This was also observed for provisions (where it may be assumed that upwards of 80 percent are on account of NPA) that were made in the last two quarters,” the report said.

However, two banks have ratios of above 20 percent in Q2-FY19 - IOB with 24.73 percent and Dena Bank with 23.64 percent, while five banks have ratios in the band of 15-20 percent.

Hence, as per the Care report, there would still be some banks whose NPA ratios would have to be monitored closely for another two quarters.