Banks reel in credit demand as NPAs spread out

Banks reel  in credit demand as NPAs spread out 

Public sector banks continued to use media opportunities to push the case for their higher NPAs being a matter of course as RBI gets serious about dynamic provisioning norms for the entire sector.

SBI would be affected adversely by the Dynamic provisioning Norms. The Sector average 1.37% in Gross non performin gloans, likely the basis for the new dynamic provisioning benchmark by RBI, is already exceeded in most Public sector banks including Union Bank of India and Canara Bank.

SBI profits will remain nearly obliterated by the Dynamic provisioning norms even as PNB manages better Gross and Net NPAs and Private sector banks look for ways around the “penalties” they have to carry for their public sector brethren.

Even ICICI bank woud be closer to the new Dynamic Provisioning norm limit as retail loans make up half of their loan assets to $10 bln.  

RBI is expected to start off dynamic provisioning implementation with a PCR requirement of 70% from 56% currently.

The Dynamic provisions should apply as a fixed / moving percentage of the total loan book based on NPA performance and may later be upgraded like the IRB norms under Basel to individual assessments for each bank as banks have different efficiency levels (hopefully) The Net provisions then made each year would be netted out of the new provision. Provisions will continue to be carved out at end of year

Credit growth continued at 17% to nearly INR 45 tln f loan assets for the last week of the Fiscal March 2012


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