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C. Shivkumar

The net NPAs of banks may raise beyond the current levels of around 5 per cent of advances. Many banks have already begun making ad-hoc provisions for moving into the 90-day income recognition norm, as early as two years ago.

Bangalore , Sept. 26

PROFITS of the banking sector are likely to be adversely hit in view of the new prudential accounting norms being put in place with effect from March 31, 2004.

The Reserve Bank of India notified these norms to all the banks last month. In line with the international best practices, banks would have to treat loans as non-performing if debt-servicing payments are overdue beyond a period of 90 days.

agricultural advances, the asset would be treated as sub-standard only in the event of servicing over dues for two consecutive harvest seasons.

Banking sources said that the adoption of these norms would imply that provisioning for substandard assets would considerably escalate for such loans. Currently, many banks have achieved non-performing asset (NPA) coverage ratios of around 55 per cent till March 2003. Sources said that changed accounting norms would again raise the net NPA of the banks beyond the current levels of around 5 per cent of advances.

The Chairman of SBI, Mr A.K. Purwar, did speak a couple of months ago of a possible increase of around Rs 1,000 crore in gross non-performing assets during the current year on account of a change to the 90-day norm. SBI's gross non-performing assets were at around Rs 13,595 crore at the end of March 2003.

However, not all bankers believe that the new norms would hit them hard. This was because many banks have already begun making ad-hoc provisions for moving into the 90-day income recognition norm, as early as two years ago.

Bank of Baroda, for instance, has made a provision of around Rs 65 crore in 2002-03 and Rs 60 crore in 2001-02 for this purpose. SBI's annual report mentions that the bank had made a floating provision of Rs 550 crore over and above the RBI norms including for prudential provision of moving to the 90-day norm.

Similarly, Punjab National Bank has made a floating provision for NPAs (over and above RBI norms) of Rs 360 crore in 2002-03 as against Rs 240 crore in the previous year.

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