THE TOLD AND UNTOLD DETAILS OF NPA STATUS OF INDIAN BANKS. - BY SANJEEV KUMAR 7070682025

1. -A study of the current trends, facts,
figures and Conclusion.
(Timeline: AMJ Qtr. Of 2017-18)
-By- SANJEEV KUMAR
-+91-7070682025.
The NPA Story of India

2. INDIA: An outlook
Although smaller than in some other Asian nations
there are various interconnected debt problems in India.
The government Debt to Equity ratio is nearly 70 %,
much higher than similar BBB rated sovereigns. Fitch
ratings ltd said in a report this month. And corporate
debt is increasing, along with a rise in Bad loans, which
is causing risk to the banking sector.
Fitch puts India’s recapitalisation burden at $90 Bn by
2019, while the government has committed only Rs. 10
Bn in fiscal resources. And with a narrow tax base, the
govt. will have to fund these measures with more
borrowing, further rising the debt burden of the state.
- A Bloomberg report.
NPA's : The Current Status
Story

3. An Insight into the trends
 It is essential to understand what is happening in the overall
macro economical environment (Current account deficit, Fiscal
deficit, Inflation, geo-political situation and Regional
security) to understand the impact of the market on the lending
patterns of the Banks. This can be further explained when I will
conclude the details in my last slide.
 Economies and markets move in cycles investing at the troughs
and exiting at the peaks of a security is fine in theory, but difficult
in practice since it is almost impossible to call the troughs and
peaks.
 As economist Paul Samuelson famously remarked “Economists
have correctly predicted five out of last nine recessions”, therefore
it is not necessary to correctly call troughs and peaks; catching the
up trends sufficiently early is enough to make a fortune in the
stock market.
 An insights into the emerging megatrends in an Economy and
market can enable investors to spot the winners sufficiently early.
 As per the RBI’s Financial stability report’s (2012) previous trends
of the banking sector showed that India’s financial institutions
depend on each other for funding and direct credit exposures.
While the banking sector is a net lender to NBFCs, it is a net

4. Economic Trends
 2008: Global financial meltdown of 2008 and the Great
Recession that followed were huge shakes that have had
devastating consequences.
 2010: The European debt crisis exploded, impacting
financial markets worldwide.
 2013: Emerging markets reeled under the currency crisis
caused by the Taper tantrum of the US feed.
 2016: Markets were hit by unexpected events such as brexit,
the election of Donald Trump as president of USA, and back
home the black swan event of demonetisation.
 Total Stressed Assets: In October 2015, current RBI
governor started an audit into the account of all the banks
balance sheets, including PSB’s and Private banks, which
resulted in the findings of the NPA’s rising out of Corporate
Debt. This has bloated into a huge amount of more than
$180 Bn which equals to Rs.11.17 lakh crores.
 Gross NPA’s of PSU Banks inched upto an average of
12.6% in the December quarter 2016 , up 60 basis points

5. The Forex Debt:
 According to a recent study by India Ratings, forex debt of the top 100
commercial borrowers in the country was Rs. 8.1 lakh Crore ($124 Bn.) Of
this only 36% was covered by using forex hedging practices.
 It means vast majority of the forex debt is susceptible to currency
movements. While not all companies provide currency wise details of their
forex loans, those in the metals, oil and gas and telecom sectors may
benefit from a rise in the value of Indian Rupees. As they will have to pay
lesser in foreign currency.
 Forex Exposures:TOP NET
EXPORTERS
Amount TOP NET
IMPORTERS
Amount
TCS 52,302.23 IOCL -1,22,008.89
Infosys 26,725.00 BPCL -42,324.00
Wipro 19,035.00 Reliance
Industries
-20,839.00
HCL technologies 10,318.00 ONGC -19,689.00
Bajaj Auto 8,662.00 TATA Steel -5,226.71

6. Priority Sector lending:
 Priority sector lendings: This comprise 34% of total
loans by the banks compared to 32% for corporates as
of end of january’17 – RBI data on sectoral
deployment of Bank credit showed.
 Outstanding loans to large industries amounted to Rs.
21.8 lakh Crore as of end January, compared with
Rs.22.7 lakh Crore to the priority sector.

7. The Corporate Debt
 BREAK-UP of top Banks exposure to corporates loans
in terms of NPA’s: Quarterly in 2016
 Break-up of other smaller Banks:
Banks Mar 2016 June 2016 Sept 2016 Dec 2016
SBI 1,37,228 1,38,092 1,42,353 1,42,800
BOB 54,256 57,155 56,809 56,701
ICICI 35,294 34,384 38,884 44,492
AXIS
Bank
14,160 16,916 23,081 26,576
BAN
KS
PNB BOI CAN
ARA
BAN
K
IOB UBI IDBI CBI Allah
abad
Bank
OBC Corp
orati
on
Bank
AMM
OUN
T
54,64
0
44,04
0
31,07
3
30,07
3
27,89
1
25,97
3
25,71
8
18,85
2
18,38
3

8. Debt as in the Books of account of companies:
 Stressed assets are concentrated in a remarkably few
borrower, with a mere 50 companies accounting for 71% of the
debt owned by companies with interest coverage ratios of less
than 1.
 On an average these 50 companies owe Rs. 20,000 Crore in
debt, with 10 companies owing more than Rs.40,000 Crore
each.
 The state of affairs also blows the myth that India was not
affected by the global financial crises and the banking system
was resilient.
 Indian lenders at the behest of government, threw in more
good money. The belief was that time would heal the corporate
wound, but banks are bleeding more because of that
approach.
 A lack of co-ordination between banks and borrowers playing
one bank against another has been a major source of irritant

9. No turnaround yet:
Source: Credit Suisse (Represents outstanding debt as of
FY-16.)
0 200 400 600 800
Alok industries
GVK Power & Infra
Reliance Communication
Lanco Infratech
Jindal steel and Power
Videocon Industries
GVR Infra
Adani Power
Jaiprakash Associates
Debt of some companies that have been in stress
for 3 years or more
Billion Rupees

10. BASEL III Requirements:
 As per the Basel III requirements the minimum Capital
Adequacy ratio of every bank should be 9% of its book
value of which non equity capital to be up to 65% and
remaining 35% to be equity capital.
 Fitch India affiliate sees bank’s core capital needs at $13.6
Bn by march 2019.
- Reuters
 Indian banks need 910 billion rupees ($ 19.6 bn) in tier 1
capital until march 2019 to grow a base minimum pace of 8-
9% on an average.
- India ratings
and Research
 Of the total capital needs 500 billion rupees will have to
come from additional Tier 1 bonds, the rating agencies an
affiliate of FITCH said.
 The Indian government which owns majority in nearly two
dozen lenders has plans to inject 200 billion rupees into
these banks over next two financial years beginning April
2017.

11. Solutions for Bad debts provided by
the RBI:
 Previously there was a Sarfesi Act 2002 under which the
Banks were having the power to collect the pending dues
from the defaulters without the intervention of the courts.
Under this act the banks send notice to the defaulters and
can ask them to clear the delinquent account.
 Present corporate debt. restructuring schemes: CDR, SDR,
S4A
 Corporate debt restructuring(CDR): It reschedules loans
to give defaulting companies a longer and easier repayment
chance-not more than 10% of the outstanding debt can be
converted into equity.
 Strategic Debt Restructuring Plan(SDR): This plan entails
a change in the management of the defaulting company. In
this the lender has to spot a buyer-preferably upfront- and
sell the company to the new promoter within 18 months.
 Scheme for Sustainable Structuring of Stressed Assets
(S4A): Under this at least 50% of the debt has to be
sustainable- in other words, which can be serviced with the
borrower’s existing level of EBIDTA (Earning before Income

12. Conclusion- Short, medium and long term Outlook.
 As of now the debt story of India’s corporate sector is quite grim/unique. As
during 2011-12-13 till 2014 when the companies in various sectors including
steel, cement, telecom and oil required to generate working capital/cash flow
needs they moved in the traditional direction towards Banks instead of
Capital/equity markets, due to which the burden of NPA’s had fallen completely
on the balance sheet of the Banks.
 In a rush to provide loans to the needy industry Banks overlooked the
leaverage/productivity ratios viz. Interest Coverage ratio which should be
more than 1, which was not the case.
 Now in last few years post 2014-15-16-17 as the working capital need are
increasing year to year and the technological enhancements are not
happening in the same proportion, and on the other hand the wages of the
employees are growing at a much higher rate due to a natural demand among
the working class and to offset against rising Inflation. (Note: Wages generally
raises faster than Inflation)
 This all combined together is leading into the situation of prolonged debt or Bad
debt state of the Indian Banks.
 In the medium term, once the consumption increases in the coming years i.e
2017 onwards , so will the deduction in the Bad debts will be seen as the sales
and revenues will increase and account receivables will start decreasing.
 In the longer term the above should also be supported with low Inflation, Fiscal
deficit below 3%, lesser CAD, good agricultural output and geo-political

13. References:
 Bloomberg
 Economic Times
 RBI Reports
 Reuters
 FITCH
 India ratings and research agency
 Credit Suisse