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35 Indian banks have been classified as fragile

BS Banking Bureau

At least 35 banks in the Indian banking system have been classified as being 'fragile', and having a negative net worth.

McKinsey & Company principal Leo Puri stated this at the Banking Summit 2002, basing the figures on the realistic accounting norms of non-performing assets.

Indian Bank chairperson and managing director Ranjana Kumar also did not sound very optimistic when she said the non-performing assets of the banking industry in absolute terms for the fiscal ended March 31, 2002, are estimated at over Rs 620 billion.

The bad news does not end there. While India's gross NPAs as a percentage of assets stands at 11.4 per cent as on March 31, 2001, and this figure is on the decline, the Reserve Bank of India Deputy Governor G P Muniappan said as per an assessment made by an international rating agency, "the real level of NPAs can be placed at over 20 per cent, after making marginal allowance for evergreening".

All of them were talking at the special session on "NPA overhang : Magnitude, solutions and legal reforms" at the CII banking summit.

Muniappan was not present at the summit but his speech was circulated. CII's chief economist Omkar Goswami pointed out that at least 135 companies' debt to market capitalisation exceeds three.

In other debt, their debt burden is three times their market capitalilsation. The list of companies includes A and B-group corporates, whose exposure to the banking system stands at Rs 530 billion. Much of this are on account of projects under implementation.

M S Verma, former chairman of State Bank of India and currently chairman of Telecom Regulatory Authority of India pointed out that at least nine out of 27 banks have a coverage ratio of less than 0.5 per cent.

"The coverage ratio of the three weak banks stands negative," he added.

The coverage ratio, said Verma, is the best indicator for the health of the system. It is calculated adding the equity capital to the provisions made by the bank minus the non-performing assets divided by the total assets.

"In the case of a bank having no NPAs, the ratio could be as high as the capital adequacy ratio of eight to nine per cent," he said.

RBI chief general manager M R Srinivasan pointed out that 20 per cent of the advances are bad loans. Srinivasan reiterated the regulator's concern over new private sector banks having accumulated lots of NPAs, but having written them off against profits.

"The problem is everyone is looking at accounting of NPAs, but no one is responsible to see that accounts are run well," he added.

The accretion in NPAs do not give a real picture as greening of old loans are taking place as banks shy away from NPAs, said Srinivasan.

"The RBI does not want to tolerate ever-greening or greening of NPAs at any point of time," he added.

Top bankers and institutions -- Central Bank of India CMD Dalbir Singh, Kumar of Indian Bank and Industrial Development Bank of India deputy managing director T M Nagarajan -- blamed the archaic legal system.

More than 50 cases are lying in the Calcutta High Court concerning companies which have been in liquidation for over 50 years, stated Goswami. The BIFR is seen by bankers as a refuge for unscrupulous borrowers, resulting in banks being utterly helpless, added Kumar.

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