Bad loan crisis of state-owned banks surged 56.4 per cent in the 12-month period ending December 2016. (Reuters)

Bad loan crisis of state-owned banks surged 56.4 per cent in the 12-month period ending December 2016. It is set to rise further in the next two quarters with the small and medium sectors struggling to repay the loans after the NDA government’s demonetisation move in November 8. It was reported by The Indian Express that the gross non-performing assets (NPA) surged to Rs 614,872cr.

Despite the Reserve Bank of India (RBI) announcing numerous restructuring schemes, the bad loans have risen up from Rs 261,843cr by 135 per cent in last two years. They now constitute 11 per cent of of the gross advances of Public Sector Unit (PSU) banks. In all, the total NPAs including both the public and private sector banks were Rs 697,409cr in December 2016. These figures were compiled by Care Ratings.

Five banks have reported gross NPA ratios of over 15 per cent. Indian Overseas Bank’s (IOB) gross NPA ratio reads 22.42 per cent, which means Rs 22.42 out of Rs 100 lent by the bank will be classified as bad loan. Similarly, UCO bank posted NPA ratio of 17.18 per cent, United Bank of India (UBI) read 15.98 per cent, IDBI bank read 15.16 per cent and Bank of Maharashtra read 15.08 per cent.

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A former chairman of a nationalised bank said, “ The government needs to chalk out a plan for such banks. Obviously, schemes to tackle stressed assets haven’t worked well. Many banks will miss the RBI deadline to clean up balance sheets by March 2017, with demonetisation now adding to the pressure.”

Banks made a commendable effort by deploying many staffs to work extra time in the months of November and December post-demonetisation.

State Bank of India (SBI) managed to restrict NPAs to Rs 1.08 lakh crore for December quarter compared to Rs 1.06 lakh crore for September quarter. However, they posted a 134 per cent rise in Q3 net profit. While banks like Punjab National Bank (PNB) and Bank of Baroda (BoB) reported a decline in NPA.

SBI, accounting for almost hald of the banking sector’s SME portfolio, said that it is working on a scheme to support good small and medium units, which are facing problems post-demonetisation, thereby slowing down the economy.

SBI MD Rajnish Kumar said, “We are working on the modalities of a scheme for SMEs with turnover up to Rs 25 crore. The scheme will be applicable to SMEs which were making profits, and are now finding it difficult to service their loan repayment or payment schedules.”

According to RBI, the public sector banks may continue to register highest GNPA ratio. RBI’s Financial Stability Report (FSR) said, “Under baseline scenario, the PSBs’ GNPA ratio may increase to 12.5 per cent in March 2017 and then to 12.9 per cent in March 2018 from 11.8 per cent in September 2016, which could increase further under a severe stress scenario.”