Private banks beat public sector lenders in bad loan growth

Private banks may be having a lesser amount of bad loans due to their smaller size in comparison with public sector banks (PSBs), but they have surpassed the latter in bad loan growth by a huge margin.

Industry-wise loan data by Reserve Bank of India (RBI) has revealed private banks posted a higher bad loan growth than PSBs in the last five years.

The data accessed by DNA Money through RTI shows private banks have registered high year-on-year bad loan growth rate in 14 industries out of 18 industries, including the infrastructure sector, in the financial year 2018.

An analysis of the bad loan data of 18 industries of the last five years – which amounts to 90 instances – private banks registered a bad loan growth in 70 instances and a drop in remaining 20. In comparison, PSBs saw bad loan growth in 75 instances and a fall in 15.

Interestingly, the private sector bad loan growth in the last five years has been higher than PSBs in infrastructure, a critical sector comprising six industries—power, telecom, roads, ports, hospital and construction infra.

In 2014, year-on-year bad loan growth of private banks was almost the double that of PSBs in infrastructure sector. Private banks' bad loans grew at the rate of 220% as compared to 112% of public sector banks during the year. The private sector has maintained this leap in following years, too.

In FY 2015, private banks saw an 87% jump in bad loans, against a 69% rise in PSBs. In 2016, bad loans at private banks grew 216%, while PSBs posted 158% growth. In 2017, bad loans at private banks grew 71% against 10% for PSBs while in 2018, the bad loan growth of private sector in infrastructure was 125% against 121% for PSBs.

Shockingly, private banks' bad loan spike has been over 1,000% for certain sectors. In petroleum, coal and nuclear sectors, private banks recorded a 1,206% jump in bad loans in fiscal 2018. In comparison, PSBs bad loan in the sector dropped 34% during the year.

Private banks' bad loans in the cement sector grew a 16585% to Rs 5,637 crore in fiscal 2017 against Rs 34 crore in 2016. PSB bad loans to the sector grew 73% during the year.

The 2017 spike came as private banks had recorded fall in bad loans in 2015 (-32%) and 2016 (-55%).

A similar trend has been observed in glass & glassware industry where private banks posted 6,467% growth in bad loans in FY 2018.

Mining & quarrying, wood and rubber industry too saw big spikes in private banks bad loans.

A banking sector expert said the reason for the spurt in private sector bad loans was poor economic performance and pressure from RBI to disclose bad loans.

D T Franco, former general secretary, All India Bank Officers' Confederation, told DNA Money, "Private banks had been hiding bad loans. Now, they have started disclosing due to fear that delaying NPA classifications will affect recovery. RBI pressure is also a reason for the disclosure now. With Insolvency and Bankruptcy Code and National Company Law Tribunals, it is possible to write off without fear of accountability. This helps the bankers as well as defaulters. Hence, they have started showing NPAs in their balance-sheets. Even now, all NPAs are not disclosed, and we don't have any effective tools for recovery in case of wilful defaults."

The growth of bad loan in the private sector has a link with RBI rules issued in February this year. The central bank has been withdrawn all its existing stressed asset schemes and directed to banks to classify loans where such schemes have been under implementation as NPAs.

WIDENING GAP

1,206% – jump in bad loans of private banks to petroleum, nuclear and coal sectors in FY18

16,585% – jump in private banks’ bad loans to cement sector in fiscal 2017