Banks’ non-performing assets (NPAs) will continue to pull their profits down in the coming

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quarters. This will largely be a result of the fact that the economic recovery is not truly widespread and some segments, like the real estate, small and medium enterprises, will continue to give rise to bad loans.

The total gross NPAs of six leading banks have run up to Rs 42,000 crore.

The fall in treasury income of most banks, as yields on government securities rise, will also continue to be another damper on banks.

The State Bank of India (SBI) reported a 48.24 per cent rise in gross NPAs. Even those with healthy portfolios, like Bank of Baroda, reported a spurt in NPAs. One main reason was the agricultural debt waiver scheme, which added Rs 215 crore to the bank’s gross NPAs.

“In the next two quarters, NPAs will grow faster than advances. NPAs are a concern but are within manageable limits now,” O P Bhatt, SBI chairman, at at press conference last week. The NPAs of SBI are led by a huge accretion of bad loans in the mid-corporate sector. The banks’ NPAs in this sector were Rs 887 crore in the third quarter. Small & medium enterprises accounted for Rs 371 crore in NPAs and and retail Rs 238 crore.

ICICI Bank, which saw no growth in advances, added Rs 750 crore to its NPAs during the quarter. But NPAs were under check because of write-offs. “We have done a technical or prudential write-off against retail loans of Rs 1,020 crore. In addition, there will be some small amount of settlement on the corporate side,” ICICI Bank officials told analysts after the third- quarter results. Of the Rs 750 crore of new NPAs, about Rs 650 crore were bad retail loans.

Gross NPAs as a percentage of loans continued to rise, moving up to 4.84 per cent in the December quarter from 4.69 per cent in the preceding quarter, even after a of restructuring accounts and writing off loans. The total advances of ICICI Bank continued to decrease and outstanding loans at end of the third quarter were 6 per cent lower than those at the end of September.

“But the spate of bad loans have peaked and as we bring down our unsecured loans, the NPAs will start dropping,” Chanda Kochhar, CEO of the bank, told Financial Chronicle a a little over a week ago.

The agricultural debt waiver scheme which ended on December 31 added to the woes of banks. One of the few banks that have taken into account bad loans arising out fo the scheme is Punjab National bank. It accounted for Rs 365 crore of bad agricultural loans. Bank of Baroda included Rs 215 crore of bad farm loans into its gross NPA data.

“NPAs in the banking system are bound to increase. Our NPAs are not disproportionately large, but when they get to 2 per cent of gross advances, we will have to take swift action,” said K R Kamat, Punjab National Bank CMD.

In Canara Bank the asset quality deteriorated as gross NPAs increased by 12 per cent on a sequential basis, when advances increased by 1.8 per cent. Its gross NPAs in the quarter rose to Rs 2,619 crore from Rs 2,378 crore a year ago.

“The net NPAs and the resultant provisioning that banks will have to do will put pressure on their net interest margins. The economic slowdown last year has given rise to NPAs,” said M V Nair, chairman of the Indian Banks’ Association and CMD of Union Bank of India.

Gross net performing loans surged 20 per cent over the second quarter partly on account of slippages in loans under the debt relief scheme. Provisioning coverage declined to 74 per cent (83 per cent, including technical write-offs), according to HDFC Securities’ institutional research.