While overall bank credit growth was a little less than 15 per cent in 2013-14, some public sector banks recorded a significantly higher figure, resulting in a Reserve Bank of India (RBI) caution to these lenders.
Credit growth for the sector was 14.8 per cent but Bank of India (BoI), Canara Bank and Bank of Baroda (BoB) reported about 20 per cent; UCO Bank, and Indian Bank reported a little over 16 per cent from 2012-13.
According to RBI sources, some banks had extended credit to existing borrowers to repay their debt, known as evergreening of loans in banking parlance. Also, the annual financial inspection found high exposure to sectors facing large stress, such as infrastructure.
Canara Bank, for example, recorded loan growth of 19 per cent to infrastructure; within this segment, the power sector saw loan growth of 19 per cent. Loans to the infra sector were 50.8 per cent of the total debt restructuring of the bank, in which the power sector contribution was 37.3 per cent.
Large industries contributed 43 per cent of total slippages in the fourth quarter, Rs 920 crore of total slippage of Rs 2,134 crore.
Similarly, Bank of India which reported 26.5 per cent loan growth to the infra sector also recorded 2.61 per cent of gross non-performing assets (of the total) from the same sector. The lender’s overall gross non-performing asset ratio was 3.15 per cent as on March 31.
In some banks with significant international presence, such as BoI and BoB, the rupee’s weakening against the dollar in FY14 also contributed to higher growth of the balance sheet than it would have otherwise been.
On Saturday, RBI Deputy Governor R Gandhi expressed concern over bad loans and said banks should strengthen their internal credit appraisal systems to minimise the risk of default.
“The final (NPA) figure for March 2014 is yet to be known. While some may view this ratio as reasonable, given the economic conditions in the country and elsewhere, the total stressed assets in the banking system (including restructured standard assets) as at December 2013 was 10.13 per cent of the gross advances of banks, a cause of concern,” he said.
He, however, expects the figures for the fourth quarter of the previous financial year to be better than the third quarter.
In 2012-13, Bank of Maharashtra reported 35 per cent credit growth when that in the overall system was about 15 per cent.
The bank’s asset quality worsened subsequently and profitability came under pressure the following year.
RBI had then asked the bank to be cautious while lending.