Bad loans of Indian banks can go up to 3.25-3.75% of total advances as compared to 2.17% as of March 2009. This was reported by credit rating agency, ICRA. The analysis used the functioning of 43 commercial banks, both public sector as well as major private sector banks, comprising 90% of the market.
Explaining its reasoning behind the likely increase in personal loans, ICRA said that some public sector banks have experienced slippages in their newly restructured loan portfolio. This was despite giving borrowers cessation on principal payments. Slippage for SBI was Rs 2,621 crore in the 9 months from April to December 2009.
Besides, ICRA maintains that a portion of lax agriculture portfolio has yet to be categorized as non-performing assets (NPAs) by banks, since they are anticipating some relief from RBI or the government. E.g. in its 3rd quarter results, SBI did not provide for Rs. 1,530 crore bad agriculture loans, as the bank is waiting for the government’s decision on extension of settlement scheme that expired on December 2009.
ICRA also anticipates the interest rates to increase during the next few months and can affect pre-tax profits to the tune of 10-20%, as 30-35% of banks’ bond portfolio is of the type ‘available for sale’ and ‘held for trading’ in order to compensate for depreciation in securities. Also interest margins of the banks is set to improve in the 4th quarter as banks increase their loan book and change from expensive funds to cheap ones.