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Bottomlines shrink, bad loans rise...
With the slowdown of economic activity, the Indian banking sector has been experiencing a sharp rise in the gross NPA ratios.

Published figures reveal that bad loans surge, margins squeeze, provisions rise and net profits shrink in the case of several banks.

    Agricultural sector continues to be the Achilles’ heel of the Indian economy. Its contribution to GDP has been wavering. There was a significant decline in the flow of bank credit to this sector this year. The rate of growth of credit to agricultural activities fell from 18.3 per cent to 11.5 per cent during the year.


NPAs rising

During the third quarter of FY 2014, the gross NPA ratios of almost all banks have risen very high. According to an estimate, the gross NPAs of 40 banks have increased during the year by 36 per cent to Rs.2.43 trillion from Rs.1.79 trillion. Kingfisher has made its contribution to the soaring NPA of big banks, which were the consortium members.

State Bank of India has witnessed its gross NPA rising from 5.3 per cent to 5.73 per cent of the total advances as at the end of December 2013. It is mostly the large advances that are contributing to the growth of NPAs. The total contaminated assets of the top 30 NPA accounts of the nationalised banks have increased from Rs.41,660 crore in December 2012 to Rs.59,248 crore in December 2013.

In the case of advances to the priority sectors, public sector banks and old private sector banks have witnessed deterioration in their asset quality. Foreign banks also have their share in the rise of NPAs, but not in the priority sectors. On an average, 35 per cent of bad assets emanate from mid-corporates and the SMEs.The Financial Stability Report of the Reserve Bank of India has indicated that asset quality continues to be a major concern for scheduled commercial banks.  The RBI has cautioned that if the current adverse macro-economic conditions continue, the system level gross NPA (non-performing assets) ratio could rise to 4.4 per cent by end-March 2014. This ratio could go up to 7.6 per cent under the severe risk scenario, it added.


Changes on the positive side

Two areas in which, the banking sector has made notable expansion during the year are: service outlets and intake of bank staff. For improving the quality of service and to provide greater access to banking facilities these developments are necessary. When the banking sector is passing through a difficult period, there is a new entrant into the banking scene: Bharathiya Mahila Bank, a public sector bank managed by women. However, by confining to a few metropolitan centres, it cannot do much. New licences for banking companies continue to remain a mirage.

Between January 2013 and September 2013 (the latest data available) 7427 new branches have been opened by the banking sector; that’s 7 per cent of total branches. Bulk of them are in rural and in semi-urban areas. News is that soon the total number of ATMs operating in India will overtake the brick and mortar branches.

On the HR front, almost all public sector banks have announced massive recruitment programmes. After the closure of Banking Services Recruitment Boards, it is now the responsibility of Institute of Banking Personnel Selection to recruit bank personnel in bulk. Training of the newly recruited staff is outsourced. Interestingly, a few banks are facilitating the selected staff to obtain a Diploma in Banking from a few universities and training institutes across India.


SBI to offer shares to employees...

The SBI has proposed to make its staff members as shareholders, while raising its total capital. Shares worth Rs.12,000 crore would be offered to the Bank’s staff at a discounted price. This is a desirable move. Banks could consider using a part of the wage-arrears, if any, to be used for investing in shares by the staff members.

Next year, when new banks appear on the banking scene, poaching the experienced staff of the public sector banks is imminent. Foreign banks, if they form 100 per cent subsidiaries in India, may open some more branches in major cities as well as in some unbanked centres. This move also is likely to attract the staff from the Indian banks.

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