Why NPAs In The Banking Sector Are Rising?

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Non Performing Assets have become a pain for the banking sector and a bigger pain for investors, who have seen their wealth erode as banking stocks plunge.

Why NPAs In The Banking Sector Are Rising?
There's absolutely no stopping the sharp fall in banking stocks. ICICI Bank, State Bank of India, Bank of Baroda and a host of other banking stocks plunged to fresh 52-week lows.

Even a bell weather and blue chip banking stock, HDFC Bank is close to hitting a new 52-week low. ICICI Bank was last trading at Rs 192, a level not seen at least in the last many years. State Bank was trading at Rs 147, again a level maybe seen immediately after the sub prime mortgage crisis.

Lesser said about the stock prices of Punjab National Bank, Bank of India, Canara Bank, Syndicate Bank, Allahabad Bank, the better. All of these stocks have plunged to new 52-week lows.

Banks with Best NPAs for
December Quarter
BanksGross NPANet NPA
HDFC Bank0.97 per cent0.29 per cent
Kotak Bank2.30 per cent0.36 per cent
Yes Bank0.66 per cent0.61 per cent
IndusInd Bank0.82 per cent0.33 per cent

Banks with worst NPA
BanksGross NPANet NPA
State Bank of India5.10 per cent2.89 per cent
ICICI4.72 per cent2.28 per cent
PNB8.47 per cent5.86 per cent
IOB12.64 per cent8.32 per cent
Central Bank of India8.95 per cent5.30 per cent
Bank of India8.18 per cent5.25 per cent

Why Are NPAs in the banking sector rising suddenly?

The problem is that non performing assets have risen only in this quarter, after the Reserve Bank of India directed banks to report even visibly stressed assets as NPAs. Now, the problem is banks have been sitting on huge non performing assets, which they failed to hitherto report. Now, with the RBI directive to classify them as non performing, has led to huge rise in NPAs.

This is one reason why NPAs in the banking sector are rising. Some select banks have had no major issues with NPAs. These include the likes of HDFC Bank, Yes Bank, IndusInd Bank and Kotak Mahindra Bank.

The problem with banks at the moment is that nobody knows how much of non performing assets have to be recognised. If there significant numbers than the quarterly numbers for March 31, 2016 is going to be equally bad.

Banks like ICICI Bank have already admitted that the next quarter is going to be equally bad. One cannot say with certainty if it could be worse.

The problem solely lies with the banks. Some banks like HDFC Bank, IndusInd Bank, Yes Bank and Kotak Bank have also been operating in the same economic environment, but have their NPAs very much under control.

Why not banks like Axis, ICICI Bank, SBI and a host of other government owned banks.

Of course, it is easy to say that it is because of the steel, power and other sectors, but, investors and the country have been losing heavily. The government has to keep capitalizing the banks from citizens tax paid. They keep making the same mistakes by lending recklessly, wasting tax payers money. Five years back one bank was capitalized after lending to the power sector and having non performing assets there. Today, it has lent to the steel sector and is having problems there.

Clearly, it's time there is some intervention.


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