The RBI says total gross bad loans in FY11 fell to 2.25% of total loans from 2.39% but this hides the real picture. CNBC-TV18’s Latha Venkatesh reports with some interesting details from the RBI report on bank bad loans. The RBIs report indicates a mixed picture on NPLs but largely positive. It says gross NPAs in FY11 actually fell to 2.25% from 2.39% in the previous year but this could be a understatement because a lot of loans got written off. 10% of the gross NPAs of the previous year were written off. What happened when you write off loans is the total amount of advances itself shrinks. So the percentage of bad loans looks a little better. Likewise if you looked at restructured loans that also rose rather significantly from 2.16% of total standard loans in FY09 to 3% in FY10 to 2.66% in FY11, so since a lot of loans were restructured following Lehman that also made the gross NPLs look a little smaller, perhaps understated. RBI has done a stressed analysis. If you assume that all the restructured loans will go bad then the gross NPLs rise to 5% but separately bankers tell us that only about 20% of the restructured loans actually went bad and therefore perhaps the picture is not all that disturbing. Also banks increased their provisioning requirement because of RBIs rules. Total amount of provision cover rose from 51% to 55% in FY11. Therefore net NPAs rose very slowly, rose only by 8%. The other important point that RBI points out is recoveries have been somewhat rising. Banks recovered 57% of their outstanding gross loans as of FY10. That is not very good. In several other countries the recoveries are much higher…but this is because of the SARFESI Act, debt recovery tribunals and Lok Adalats. There have been an increasing number of cases addressed through both the SARFESI as debt recovery tribunal.
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