PSBs see a record rise in Gross NPAs.

The Gross NPAs (Non Performing Assets) to advances ratio for PSBs (Public Sector Banks) rose to a record high at the end of September 2012.

• As of September 2012 the ratio of gross NPA to advances was the highest for SBI at 5.15 i.e. SBI had Rs 5.15 in stressed assets for every Rs 100 it lent.
• Priority sector contributed to largest share of NPAs for SBI & its associates and nationalized banks.

As per RBI the sudden rise in NPAs was mainly attributed to:

• deterioration in asset quality of the banks
• slowdown prevailing in the domestic economy as well as the external front
• inadequate appraisal and monitoring of credit proposals during the boom period of 2003-07

Why is asset quality of a bank important ?

The asset quality of banks is an important because:

• it is an indicator of their financial health
• it reflects the efficacy of banks’ credit risk management and the recovery environment.

In order to improve the NPA management framework, the RBI its in 2012-13 Monetary Policy has advised the banks:

• To put in place a robust mechanism for early detection of signs of distress, and implement measures to preserve the economic value of assets.
• Prepare a proper system-generated segment wise data on their NPA account.

Month: Current Affairs - November, 2012