Banks could see a build up of non-performing assets in the infrastructure and power sectors, said Mr Naresh Takkar, Managing Director and CEO, ICRA. Speaking at India Infoline's ‘Enterprising India 2012 Global Investors' Conference', Mr Takkar said 75 per cent of banks' exposure to electricity boards are towards weak utilities. So, out of the Rs 1.2-1.3 lakh crore exposures to electricity boards, about Rs 1 lakh crore worth of loans are subject to uncertainty and require policy intervention such as tariff hikes. Some States are working on aggressive tariff hikes, he added.

With regard to road projects, Mr Takkar said that the underlying profitability of projects is very low and these have high proportion of debt. So, it is the banking sector which is at risk and not the developers.

In case of iron and steel sector, there is a risk of excess capacity getting added and 25-30 per cent of the capacity is not used completely. So, unless there is adequate capacity utilisation, there is a fear of further build up of NPAs.

About Rs 3-3.25 lakh crore exposures of banks could get classified as vulnerable. How much of these will become NPAs will depend on the reforms, Mr Takkar pointed out.

In the April-December period, restructured assets for public sector banks have gone up by 36 per cent, except for State Bank of India. For SBI, restructured assets have increased only by 9 per cent, due to which their NPAs look high, Mr Takkar said.

While retail and microfinance sectors are not a big concern for NPAs, small and medium enterprises and mid corporate segments do pose a big concern, he added.

The vulnerable assets for the system as a whole is in the range of Rs 3 trillion, which is less than 10 per cent of the entire lending by scheduled commercial banks, said Mr Diwakar Gupta, CFO, SBI.

The short term challenge for banks is to ensure that their systems allow for micro tracking of NPAs, he added.

“I would think we are truly over the hump with regard to NPAs. For SBI slippages in third quarter were not as high as in the second quarter. As the economy picks up credit growth will come and lot of the stressed assets will become standard,'' he said.

While Punjab National Bank saw higher than expected slippages in the third quarter, the margins were sufficient to take care of provisions, said Mr Rakesh Sethi, Executive Director.

“NPAs are a natural consequence of lending. We have a recovery mechanism for NPAs. The recovery so far this year is higher than in entire 2010-11. In the first nine months recovery was 30-40 per cent higher than in the previous year,” he said.

(This article was published on February 15, 2012)
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