Banks' NPAs could rise on account of slowing economy: PMEAC

Non-performing Assets (NPAs) of banks have been going up for the last two years due to slowdown in the economy. The gross NPAs of some public sector banks, including State Bank of India and Punjab National Bank have crossed 4 per cent of the total assets at the end of March, 2013.

rime Minister's key economic advisor C Rangarajan today indicated banks may have to

deal with higher non-performing assets (NPAs) on account of poor economic performance.

"NPA also increases because of the way economy behaves. If rise in bad loan is beyond control of banks, then banks need to be very careful in identifying NPAs," Rangarajan said.

Also read: RBI issues fresh measures to bail out banks, mkts to rally

He was speaking at the 5th Conference of Central Bureau of Investigation (CBI) officials and Central Vigilance Officials (CVO's) of Public Sector Banks.

"While judging increasing NPAs, banks should also take note of what is happening in the environment. Some amount of loan can for a time become NPA," Rangarajan added.

Non-performing Assets (NPAs) of banks have been going up for the last two years due to slowdown in the economy. The gross NPAs of some public sector banks, including State Bank of India and Punjab National Bank have crossed 4 percent of the total assets at the end of March, 2013.

Pulled down by poor performance of farm, manufacturing and mining sectors, Indian economy slowed to 4.8 percent growth rate in the January-March quarter of last fiscal year and fell to a decade's low of 5 percent for the entire 2012-13 fiscal.

Gross non-performing assets (NPA) of public sector banks rose to Rs 1.76 lakh crore at the end of June quarter from Rs 1.55 lakh crore at March 31, 2013.

According to global rating agency Standard & Poor's, India's banking sector's non performing assets (NPA) ratio is likely to surge to 3.9 percent of total loans in 2013-14 and to 4.4 percent in 2014-15, compared with 3.4 percent in fiscal 2012-13.

Recently, Minister of State for Finance Namo Narain Meena, in a written reply in the Rajya Sabha, said the NPAs of banks have shown a rising trend.

The stress on the asset quality is a reflection of the stress in the economy of the country.

Public sector banks had recovered Rs 1,905 crore by filing 97,701 suits in 2012-13 and Rs 1,700 crore through 79,117 suits in the earlier fiscal.

RBI move positive; NPAs, NIMs likely to improve: Yes Bank

Speaking to CNBC-TV18, Rajat Monga, chief financial officer, Yes Bank says the banks interest costs have gone down by approximately 2 percent from the earlier 10 percent, keeping in mind the 1 percent subvention seen in hedging cost provided by the central bank. World Education Fair 2013
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The RBI converts the lended cost of FCNR deposits in rupee terms at close to 9 percent and then on top of that it does not attract cash reserve ratio (CRR), statutory liquidity ratio (SLR).

Rajat Monga
CFO Yes Bank
Excerpts from Bazaar on CNBC-TV18 Watch the full show

ailing the RBI's move to allow

banks to raise more capital from overseas markets , Rajat Monga, chief financial officer, Yes Bank says the lowering of rupee-dollar hedging costs will incentivise banks to lend in Indian currency.

Speaking to CNBC-TV18, Monga says the banks interest costs have gone down by approximately 2 percent from the earlier 10 percent, keeping in mind the 1 percent subvention seen in hedging cost provided by the central bank.

Additionally, Monga says the outlook for non-performing assets are less vicious in the nearterm and net interest margins are likely to improve by 4-5 basis points (bps).

Below is the edited transcript of Mongas interview to CNBC-TV18. Q: Are you going to raise overseas debt post the Reserve Bank of India (RBI) increasing the limit from 50 percent to 100 percent of tier-I swap?

A: It is definitely a window of opportunity because the pricing has become quite attractive. If one looks at the math behind the summation that will go behind hedging cost etc, for a one year funding structure, about 60-70 bps of LIBOR, 150 point of spread and about 5 percent hedging cost will make it quite attractive in rupee terms.

It is quite important that RBI has given the levy in terms of lowering cost of hedging. That will incentivise the borrowers who will be able to raise foreign currency resources, swap them into rupees and also on lend in Indian currency.

Q: How much do you all already have in terms of overseas debt, what percentage of your tier I capital have already raised and therefore what elbow room do you have?

A: We would have used about 60-70 percent of the limit and that number changes depending upon old and new transactions maturing. So there would be about 60-70 percent utilisation of the old limit. And the new limit, RBI has doubled the limit. So, I think there would be about Rs 2,000-3,000 crore ability in terms of using that window for that kind of size of borrowing opportunity but over time.

Q: Do you think your costs of money is going down, how much may it go down by?

A: The cost will be a function of 2-3 variables. One will be the tenure of the funding. Lets take an example of one year funding. One year funding will be available at LIBOR plus 150 bps. Now LIBOR for one year will be about 60-70 bps, add to that 150 bps of spread. So, about 225 bps will be the dollar cost of taking one year dollar funding. Now we cannot keep that in dollar so we will have to swap that in rupee and pay the hedge cost.

Now the hedge cost is running at about 6.5 percent and RBI is offering 1 percent subvention on the hedge cost. So, it would be about 5.5 percent which will be the net hedge cost given the fact that RBI is willing to give the hedge at 1 percent below market. So, if we add all this - 70 bps, 150 bps and the remaining 4.5 percent will give us the landed cost of rupee. In this case, it would be a little less than 8 percent.