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Non Performing Asset

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Debt Recovery Guru India -Non-performing assets of banks are set to cross the Rs one-lakh crore mark
Written by Administrator Tuesday, 07 June 2011 07:08

Non-performing assets (NPAs) of banks are set to cross the Rs one-lakh crore mark in the current fiscal as the weakened asset quality of the banking sector is likely to spill over to the year 2011-12. After the 25 per cent rise in gross NPAs of bank to Rs 77,048 crore in 2009-10, bad loans of banks shot up by another 20.97 per cent in 2010-11. “The current fiscal will be slightly better for banks as most banks including SBI had made higher provisioning to clean up their balance sheets. The impact of this measure will be witnessed in the coming quarters. If they tighten up the recovery process, whatever they had provided will add to the profits,” said the former chief of a nationalised bank. “The earnings growth in the Indian banking sector in Q4 of FY11 grew by only 8 per cent y-o-y. This is attributable to the dismal performance by SBI, whose net profits for Q4 declined by 99 per cent to Rs 20.9 crore for the period. The reason for this decline in performance by SBI is being ascribed to decline in the Net interest margins; deterioration in the asset quality (and the consequent rise in NPAs); and the rise in the pension provisions for the employees,” said a note by Kotak Mutual Fund. “The RBI has initiated a slew of policy measures including aggressive rate hikes to rein in Inflation. The banking sector has responded by raising base rates with SBI raising its base rate by 75 bps. With every such hike in interest rates, we are reaching the tipping point beyond which demand could suffer. Thus volumes, margins and asset quality of the sector will come under increasing stress,” said a study by Enam Research.

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