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Unmasking the Mystery of Stressed Assets in the Indian Banking System
March 2016 | RBSA - Research Initiative https://rbsa.in
Debt Crisis Decoded
Pg. 2 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Preface
Banking system acts as a catalyst in economic growth of a
country. For a country like India, which aspires to become a
growth engine of the world, need of developed and well managed
banking system is inevitable. Banking system accelerates capital
formation, mobilizes saving, finances commercial activities and
also helps country to implement monetary policy. Indian
government is extensively looking at financial inclusion as an
effective tool in bringing millions of its citizen out of poverty.
Today, India is at a sweet spot and this does not come so often.
We are probably at a stage where USA was in early forties (period
of baby boomers) and China was in late seventies (period of
economic liberation). Indian Economy has all the ingredients like
favorable commodity prices, lowering inflation, growth oriented
monetary policies and better fiscal discipline to become a
formidable force in global economy.
But there is a dent in this shining Indian growth story in the form
of mounting stressed loans in the banking system. We have seen
the failure of financial system in 2008 and its massive impact on
global economy. India at this juncture cannot afford an ailing
banking system. Through this report we have estimated how deep
this dent is.
Pg. 3 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Downward Spiral of Indian Banking System
Deteriorating Asset Quality
2 Years CAGR in listed public sector Banks
Advances
GNPA
9%
35%
Source: RBI, RBSA Research
4,0
55
,87
4
45
,90
,45
8
4,9
16
,11
3
4,7
94
,00
6
155,890 216,739
267,065
285,374
-
50,000
100,000
150,000
200,000
250,000
300,000
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
FY 13 FY 14 FY 15 FY 16 Q1
Gross NPA Movement: Public Sector Banks
Total Advance (in INR Cr) Gross NPAs (in INR Cr)
1,3
15
,27
7
1,5
11
,31
7
1,7
75
,26
3
1,8
17
,03
1
27,965 34,321
42,343 44,429
-
10,000
20,000
30,000
40,000
50,000
-
500,000
1,000,000
1,500,000
2,000,000
FY 13 FY 14 FY 15 FY 16 Q1
Total Advance (in INR Cr) Gross NPAs (in INR Cr)
Gross NPA Movement: Private (Indian+Foreign) Sector Banks
2 Years CAGR in all listed private sector Banks
Advances
GNPA
18%
26%
Pg. 4 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Downward Spiral of Indian Banking System
Deteriorating Asset Quality
Public Sector Banks
GNPA
RSA1
5.95%
8.15%
Source: RBI, RBSA Research 1. RSA= Restructured Standard Advances
3.84%
4.72% 5.43%
5.95%
2.13% 2.27% 2.39% 2.45%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
FY 13 FY 14 FY 15 FY 16 Q1
Gross NPA Movement
Public Sector Banks Private (Indian+ Foreign) Sector Banks
6.90% 7.10% 8.16% 8.15%
1.55% 2.01% 2.10% 1.92%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
FY 13 FY 14 FY 15 FY 16 Q1
RSA Movement
Public Sector Banks Private (Indian+ Foreign) Sector Banks
Stressed Assets 14.1%
Private Sector Banks
GNPA
RSA1
2.45%
1.92%
Stressed Assets 4.37%
Downward Spiral of Indian Banking System
Pg. 5 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Declining Performance
FY16Q3 financial numbers reported by Indian banks are one of the worst in the last few years. Performance of Indian public sector banks deteriorated significantly as all listed public sector banks cumulatively reported PAT level loss of INR 10,653 Cr during FY16Q3. Public sector banks reported muted revenue growth of 1%, while their operating profits dipped by 6% on YoY basis.
Private sector banks performed better compared to public sector banks though performance was muted when compared to their historical performance.
Downward Spiral of Indian Banking System
in INR Cr Total Income Operating Profit Profit after Tax
FY 16 Q3 FY 15 Q3 Var % YoY FY 16 Q3 FY 15 Q3 Var % YoY FY 16 Q3 FY 15 Q3 Var % YoY Sample Select Public Sector Banks
Allahabad Bank 5030 5387 -7% 860 1075 -20% -486 164 Loss in FY 16 Q3
Andhra Bank 4801 4541 6% 1030 923 12% 34 202 -83%
Bank Of Baroda 11727 11808 -1% 1704 2339 -27% -3342 334 Loss in FY 16 Q3
Bank Of India 11087 11947 -7% 1409 1865 -24% -1506 173 Loss in FY 16 Q3
State Bank Of India 67594 64605 5% 12734 12106 5% 1374 3893 -65%
All Listed Public Sector Banks 203534 202046 1% 33015 34991 -6% -10653 7881 Loss in FY 16 Q3
Sample Private Sector Banks
Axis Bank Ltd. 12531 10929 15% 3985 3315 20% 2175 1900 15%
DCB Bank Ltd. 477 404 18% 84 68 23% 41 43 -3%
Dhanlaxmi Bank Ltd. 309 345 -10% -10 6 Loss in FY 16 Q3 -56 17 Loss in FY 16 Q3
HDFC Bank Ltd. 18283 14931 22% 5736 4779 20% 3357 2795 20%
ICICI Bank Ltd. 17563 15527 13% 6560 5037 30% 3018 2889 4%
All Listed Private Sector Banks 73924 63754 16% 22055 17676 25% 11522 10163 13%
Source: ACE Equity, RBSA Research
Pg. 6 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Downward Spiral of Indian Banking System
15,000 16,000 17,000 18,000 19,000 20,000 21,000 22,000 23,000 24,000
19
-Fe
b-1
5
28
-Fe
b-1
5
11
-Mar
-15
20
-Mar
-15
31
-Mar
-15
13
-Ap
r-1
5
23
-Ap
r-1
5
5-M
ay-1
5
14
-May
-15
25
-May
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3-J
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12
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2-J
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14
-Jan
-16
25
-Jan
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4-F
eb
-16
15
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b-1
6
Performance of Bankex 21,957
16,274
Source: BSE
26% drop in value in last one year
Investors have duly noted the subdued performance of Indian Banks. Bankex – An Index that tracks banking stocks has gone down by 26% in last one year. Among the banks, public sector banks are the worst performers. As on February 19, 2016, all public sector banks were trading below their book value. On the same date, all private sector banks barring four were trading at a price more than their book value. On an average PSU Banks have lost more than 44% of their market capitalization in last one year. During the same period private sector banks lost 26% of their market capitalization.
Deteriorating Market Value
Price to Book Value as on 19th Feb 2016
Private Sector Bank*
Public Sector Banks*
1.56
0.39
Source: ACE Equity, RBSA Research* All listed private and public sector banks
Pg. 7 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Downward Spiral of Indian Banking System
Weak Fundamentals of Indian Corporates
Parameter % of Total Companies Share in Total Debt
Sep-14 Mar-15 Sep-15 Sep-14 Mar-15 Sep-15
Negative net worth or Debt to Equity >=3 13.6% 14.2% 15.3% 22.9% 23.0% 24.9%
Source: RBI's Fianancial Stability Report, 2015, RBSA Research
Growing number of weak companies As per the financial stability report of RBI dated December 2015, proportion of weak companies (Non Government Non Financial Companies with negative net worth and DE>=2) has increased from 13.6% as of Sep 2014 to 15.3% as of Sep 2015. During the same period, share of weak companies in total debt has increased from 22.9% to 24.9%. Deteriorating Profitability Profitability as measured by return on equity has decreased from FY12 to FY14 across all types of the companies. Profitability of small and medium enterprises eroded more than large corporations. Weak debt servicing capability During the same period, debt servicing capacity as measured by interest coverage ratio has also decreased significantly.
Pg. 8 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
How Banks Mask Bad Debts?
Banks are provided with various tools by RBI to restructure assets so that they can manage their loan portfolio efficiently, but these very tools are being misused by banks to mask their bad assets.
Corporate Debt Restructuring (CDR)
Corporate debt restructuring was designed to revive the stressed corporates and to ensure the recovery of the debt issued to these corporates. CDR scheme had a very rough time so far. As of 31st December 2015, only 16% of the CDR cases were successful. Failure of CDR mechanism indicates banks’ inability to assess borrowers ability and willingness to meet their restructuring commitment. CDR schemes may have been used by banks to delay the recognition of bad debts rather than solving the underlying problem.
Source: CDR Cell
CDR cases have gone up from 443 as of Dec 13 to 530 as of Dec 15
443
520 530
380
400
420
440
460
480
500
520
540
Dec-13 Dec-14 Dec-15
CDR Cases
CDR outstanding as % of total lending in Indian banking system has gone up from 5% as of Dec 2013 to 6.10% as
of Dec 2015
2,8
9,2
98
3,8
0,8
85
4,0
3,0
04
5.05%
6.02% 6.10%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
0
100000
200000
300000
400000
500000
Dec-13 Dec-14 Dec-15
CDR outstanding
CDR o/s(in INR Cr) CDR as % of agrregate loan
Pg. 9 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
How Banks Mask Bad Debts?
Failed Cases 38%
Successful Cases 16%
Live Cases 46%
Status of CDR cases as of Dec
15
Classification of live cases across top five Industries
Industry Number of cases Debt (INR Cr) % share
Iron & Steel 52 54051 21%
Infrastructure 19 42823 17%
Engineering 12 25484 10%
EPC 5 23522 9%
Construction 11 18644 7%
As on Dec 2015, 38% of the CDR cases (worth INR 83,552 Cr) have failed as per the data reported by CDR cell. Number of failed CDR cases shot up from 22% as on Dec 2013 to 29% as on Dec 14 and eventually to 38% as on Dec 2015 which indicates systematic failure of CDR scheme. Also, as on Dec 2015, 16% of the CDR cases were successful where as 46% were still under CDR mechanism (“live CDR cases”). Most of the live CDR cases are in stressed sectors such as Iron & Steel (21% cases), Infrastructure (17% cases) and Engineering (10%). Stressed sectors may take few more years for complete revival and some portion from the live cases may fail. This could result into failed cases going beyond 38% in future. RBI has recently introduced other restructuring mechanisms such as SDR and 5:25 to overcome the limited success it had with traditional CDR schemes.
Source: CDR Cell
29,038 50,104
83,552 22%
29%
38%
0%
10%
20%
30%
40%
50%
0
20000
40000
60000
80000
100000
Dec-13 Dec-14 Dec-15
Failed CDR Cases
Failed CDR cases (in INR Cr) failed cases as % of total cases
Pg. 10 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
How Banks Mask Bad Debts?
Strategic Debt Restructuring (SDR)
SDR scheme allows banks to convert the outstanding loan into equity and eventually acquire majority control of the entity. Ultimate objective is to improve the financial performance of ailing company and eventually recover the dues. Banks across public and private sectors have invoked SDR as it allows stressed debt to be classified as “Standard” for eighteen months. Equity shares of the companies which are under SDR scheme are trading at extremely low prices. Conversion of debt into equity in these companies will barely yield anything to the banks as most have Outstanding Debt Obligations to the tune of 17 to 57 times of their respective Market Capitalization.
52
0
20
6
71
8
37
8
18
2
14
0
59
18
7
28
15
00
0
11
70
5
10
23
5
75
00
30
94
23
56
22
80
20
00
12
08
29
57
14
20 17 17
39
11
43
0
10
20
30
40
50
60
0
2000
4000
6000
8000
10000
12000
14000
16000
Gam
mo
n In
dia
Mo
nn
et
Isp
at
Ele
ctro
ste
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asti
ngs
IVR
CL
Vis
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Ro
hit
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rro
-Te
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GO
L o
ffsh
ore
Ltd
An
kit
Me
tal &
Po
we
r
Market Capitalisation (INR Cr) Debt Amount (INR Cr) Debt / M.Cap (RHS)
Source: News article, RBSA Research
Pg. 11 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
SDR Cases
How Banks Mask Bad Debts?
Name of the Company
Date of SDR Announcement
Debt (in INR Cr)
Adnunik Power and Natural Resources
Dec-15 3116
AMW Motors Dec-15 1432
Ankit Metal & Power
Dec-15 1208
Electrosteels Steels
Oct-15 10235
Gammon India Nov-15 15000
GOL offshore Ltd Dec-15 2000
IVRCL Sep-15 7500
Jyoti Structure Aug-15 2356
Lanco Testa Aug-15 2400
Monnet Ispat Aug-15 11705
Rohit Ferro-Tech Nov-15 2280
Shiv-Vani Oil Sep-15 3500
Transstroy Dec-15 4300
Visa Steel Sep-15 3094
Source: News articles, RBSA Research
SDR may result in deferring of NPA recognition of : INR 1.5 Lac Cr/ USD 23 bn representing 2.2% of total advances of Indian banking system
As per ‘’SDR: A band-aid for a bullet wound’’ by Religare Institutional Research
SDR scheme requires the change in management so that stressed companies can be managed better but SDR may be used by existing errant promoters to buy back the assets of their own companies at much cheaper price by floating shell companies. RBI has recently sent a note to banks where it has asked banks to establish that there is no connection between new buyer and current promoter of the company. Restructuring loans under SDR may require banks to put additional funds into the company to make it operationally viable. Most of the restructuring schemes have moratorium period where interest payment is funded by additional debt which results in increased banking exposure to stressed companies. SDR companies are operating in the stressed sectors like infrastructure, power, metals and mines and may take few years for revival. As most of the SDR cases are from failed CDR cases, restructuring these loans through SDR would result in simply delaying the recognition of bad assets.
Pg. 12 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
5:25 Scheme
The 5:25 flexible structuring scheme allows bankers to fix longer amortization period for loans to projects in the infrastructure and core industries sector, for 25 years, based on the economic life of the project, with periodic refinancing/restructuring every 5 years. Refinancing essentially means giving new loan so that the older loan can be repaid and new loan can be started on better terms for the borrower.
As with other debt restructuring mechanisms, 5:25 schemes may require banks to infuse additional debt into stressed companies which would further increase the banking sector’s exposure to stress companies. Most of the stress companies would require the additional debt funding even to pay the interest on the old loans.
Banks can misuse 5:25 scheme as loan restructured under this scheme is not treated as bad loan in their books. This will result in lower provision and artificially showing healthy picture of assets. It will ultimately delay recognition of non performing assets and it may also result in higher losses in future due to additional funding that would require in 5:25 scheme.
How Banks Mask Bad Debts?
5:25 Refinancing Cases
Name of Organisation Debt (in INR Cr)
Adani Power 15,000
Bhushan Steel 35,000
Essar Ports 6,000
Essar Power 3,300
Essar Steel 14,500
JP Infratech 10,300
JSW Energy 6,000
Uttam Galva 1,300 Source: News articles, RBSA Research
Pg. 13 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Disclosed Stressed Advances
According to RBI’s Financial Stability Report - December 2015, 11.2% of the overall credit exposure of Scheduled Commercial Banks as on June, 2015 is classified as stressed1.
69.3
13.6
3.3
5.9
7.9
Industry
Services
Retail
Agriculture
Food Credit
Share in Total Stressed Advances - %
1. Stressed Advances = Gross NPAs + Restructured Standard Advances
Sectors Total Exposure
(INR Bn)
% Disclosed
Stressed
Disclosed Stressed
Advances (INR Bn)
Iron and Steel 982.8 27.0 265.4
Power 5,730.5 23.8 1,366.0
Telecommunication 892.5 14.2 127.2
Aviation 1,208.0 60.0 724.8
Other Industry 17,487.7 15.1 2,645.5
Industry 26,301.5 19.5 5,128.8
Services 14,331.3 7.0 1,003.2
Retail 12,134.7 2.0 242.7
Agriculture 7,946.5 5.5 437.1
Food Credit 5,396.4 10.9 586.0
Total 66,110.4 11.2 7,397.7
In our report, we are analyzing the health of exposures to the Industrial and Services sector which account for ~ INR 40,633 Bn (~61.5%) of the overall banking sector exposure of INR 66,110.4 Bn.
Source : RBI
Pg. 14 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Unmasking the Stressed Advances
In our opinion, disclosed stressed advances as on June, 2015 from the industry and services sector are not indicative of the real chunk of stressed loans lying as assets in balance sheets of the Indian Banking Sector. To support our hypothesis, we have subjected companies from the above sectors in our sample to Altman’s Z Score Model for Emerging Markets. Our sample covers 1,609 companies with total outstanding debt of INR 17,869 Billion.
Altman’s Z Score for Emerging Markets:
Altman’s Z Score Model is a linear combination of four ratios weighted by coefficients. The model is formulated as follows:
Z Score = 6.56 X1 + 3.26 X2 + 6.72 X3 + 1.05 X4, Wherein – 1) X1 = Net Working Capital / Total Assets which is a measure of company’s liquidity,
2) X2 = Retained Earnings / Total Assets which measures profitability reflecting company’s
earning power,
3) X3 = Earnings Before Interest and Taxes / Total Assets which is a measure of company’s operating efficiency apart from tax and leveraging factors and stresses importance to company’s long term stability,
4) X4 = Book Value of Equity / Total Assets which factors in the fluctuation in value of equity as a possible red flag.
The Interpretation of Altman’s Model is as follows – Z < 1.1 means STRESS zone, 1.1 < Z< 2.6 indicates GRAY zone, Z > 2.6 reflects SAFE zone.
Empirical studies suggest that there is 70% probability, that a company categorized in Stress Zone will default in repayment of its outstanding debt obligation.
Altman’s Z Score is used to predict the probability that a firm will go into bankruptcy. They are primarily used predict corporate defaults and act as a control measure for the financial distress status of companies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company.
Source : RBI’s Financial Stability Report, Dec 2015, RBSA Research
Pg. 15 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Unmasking the Stressed Advances
In support of our hypothesis, Altman’s Z Score revealed that potentially ~33% of the debt to the industrial sector ~ 28% debt to the services sector are Stressed, as compared to disclosed figures of ~19.5% and ~7% as stated in the Financial Stability Report, Dec 2015 respectively for quarter ending June 2015.
19.5 19.5 19.5
13.7 13.7 13.7
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Disclosed Stressed AsPer Financial Stability
Report, 2015 (%)
Potential AdditionalStressed (%)
Stressed As Per ZScore (%)
Stressed Advances - Industry
7.0 7.0 7.0
21.5 21.5 21.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Disclosed Stressed AsPer Financial Stability
Report, 2015 (%)
Potential AdditionalStressed (%)
Stressed As Per ZScore (%)
Stressed Advances - Services
33.2
28.5
Source : RBI, RBSA Research
27.0
23.8
14.2
60.0
42.9
49.2
53.3
78.4
0.0 20.0 40.0 60.0 80.0 100.0
Iron & Steel
Power
Telecom
Aviation
Stressed As Per Z Score (%)
Disclosed Stressed As Per Financial Stability Report, 2015 (%)
Stressed Advances in Key Stressed Industries
Pg. 16 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Unmasking the Stressed Advances
The amount of stressed assets in the Industry and Services sector is expected to increase by ~71% and 3X to ~INR 8715 Bn and ~INR 4079 Bn respectively. This translates to potential addition of ~INR 3586 Bn in stressed assets from Industry and ~INR 3076 Bn in stressed assets from Services sector.
67.5%
32.5%
Key Stressed Industries Other Industries
As per Altman's Z Score
~2/3rd of the potentially additional stressed assets in industry are from Key Stressed Industries (KSI - Iron & Steel, Power, Telecom and Aviation). Thus, KSI’s share of stressed asset in industry is expected to rise from 48.4% to 53.5%.
Of the widely disintegrated services sector, Hotels & Restaurants, unlisted IT – Software and TV Broadcasting sectors are estimated to contribute to ~18%, ~16% and ~12% of the stressed advances from services sector respectively.
Source : RBI, RBSA Research
48.4%
51.6%
As per Financial Stability Report, Dec 2015
53.5%
46.5%
As per Altman’s Z Score
26
5 1
36
6
12
7
72
5
24
83
26
46
51
29
10
03
42
2
28
19
47
6
94
7 46
64
40
51
87
15
40
79
0
2000
4000
6000
8000
10000
Iron &Steel
Power Telecom Aviation KSI OtherIndustries
Industry Services
Stressed Advances as per Financial Stability Report, 2015 (INR Bn)Stressed Advances As per Z Score (INR Bn)
Pg. 17 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Unmasking the Stressed Advances
Empirical studies suggest that ~70% of the companies in the Stress Zone are expected to default on the outstanding debt obligations. Inculcating the same conclusion in our studies on the 70% companies with poorest Z Scores, we have estimated that the total amount of default on loan obligation can potentially extend to INR 7,918.2 Bn or to ~19.5% of overall exposure to Industry and Services.
Source : RBI, RBSA Research
25
3
10
19
20
7 66
3
18
89
28
99
47
87
31
31
26%
18%
23%
55%
21%
17% 18%
22%
0%
10%
20%
30%
40%
50%
60%
0
1100
2200
3300
4400
5500
Iro
n &
Ste
el
Po
we
r
Tele
com
Avi
ati
on
KSI
Oth
er
Ind
ust
rie
s
Ind
ust
ry
Serv
ice
s
Estimated Default (INR Bn) Default to Total Exposure (%)
42
2
28
19
47
6
94
7
46
64
40
51
87
15
40
79
60%
36% 43%
70%
40%
72%
55%
77%
0%
20%
40%
60%
80%
100%
0
2000
4000
6000
8000
10000
Iro
n &
Ste
el
Po
we
r
Tele
com
Avi
ati
on
KSI
Oth
er
Ind
ust
rie
s
Ind
ust
ry
Serv
ice
s
Stressed Advances As per Z Score (INR Bn)
Default from Stressed Advances Expected In Debt by 70% Companies (%)
Pg. 18 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
With a potential of default lurking at a staggering 19.5% (amounting to INR 7,918.2 Bn) from advances relating to Industry and
Services Sectors (which account for ~61.5% of the overall banking sector exposure), a clean up in the Indian Banking System is the need of the hour. A clean and transparent banking system would indeed spur growth, build in accountability and help create a stable economy in the long term. The failure of the CDR system and the challenges related to the SDR and 5:25 debt restructuring scheme have made it difficult to estimate a fair picture of stressed loans in the Indian Banking System. To build in accountability and to overcome these challenges, RBI had recently conducted an Asset Quality Review of banks and had identified specific accounts which the banks had to classify as Non Performing Assets by March 2016. These specified accounts would be classified as NPAs regardless of their repayment structure or restructuring scheme. The said exercise has resulted in an increase in the amount of overall gross NPAs of the listed banks (which cater to ~ 89% of total exposure of the Indian Banking System) to the tune of 46% to INR 4,217.4 Bn in December 2015 from March 2015. Consequently, the share of overall Gross NPAs to overall exposure has increased from 4.4% in March 2015 to 6.0% in December, 2015. Though we appreciate RBI’s initiative which aims to clean the entire banking space by March 2017, we believe that the amount of standard advances awaiting to get classified as NPAs is much higher than what has been disclosed by banks.
Conclusion
“If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.” ― John Maynard Keynes
Pg. 19 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
Disclaimer The purpose of this Document is to provide interested parties with information that may be useful to them in understanding the content related to this document. This Document includes statements which may reflect various assumptions and assessments arrived at by the RBSA Analysts. Such assumptions, assessments and statements do not purport to contain all the information that each interested party may require. This Document may not be appropriate for all Persons, and it is not possible for the RBSA, its employees or advisors to consider the investment objectives, financial situation and particular needs of each party who reads or uses this Document. The assumptions, assessments, statements and information contained in the Document may not be complete, accurate, adequate or correct. Each interested party should, therefore, conduct its own investigations and analysis and should check the accuracy, adequacy, correctness, reliability and completeness of the assumptions, assessments, statements and information contained in this Document and obtain independent advice from appropriate sources. Information provided in this Document has been collated from several sources some of which may depend upon interpretation of Applicable Law. The information given is not intended to be an exhaustive account of statutory requirements and should not be regarded as complete. RBSA accepts no responsibility for the accuracy or otherwise for any statement contained in this document. RBSA, its employees and advisors make no representation or warranty and shall have no liability to any Person under any law, statute, rules or regulations or tort, principles of restitution or unjust enrichment or otherwise for any loss, damages, cost or expense which may arise from or be incurred or suffered on account of anything contained in this Document or otherwise, including the accuracy, adequacy, correctness, completeness or reliability of the Document and any assessment, assumption, statement or information contained therein or deemed to form part of this Document. We have analysed the sample of 1,609 companies to opine on the industrial and service sectors of the Indian economy. Our analysis assumes that the conclusions and inferences derived on sample can be extended to a population. Our analysis is subjected to the limitations which are inherent to the method of sampling. Limitations of sampling include inadequacy of the samples, chances of bias, problem of accuracy and non-representative sample among others. Also, our analysis widely depends on Z Score Model. However, the model has its own limitations in the form of past financial results not being indicative of the future. Also, the Z score is applicable to all emerging nations, however a slight change in the coefficients of its measures suiting the macroeconomic factors specific to India may yield a slightly differentiated inference. RBSA also accepts no liability of any nature whether resulting from negligence or otherwise howsoever caused arising from reliance of any person upon the statements contained in this document.
Pg. 20 of 20 Debt Crisis Decoded: Unmasking the Mystery of Stressed Assets in Indian Banking System
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