Coal Mines Deviation Report by Government Officers- Usha Martin

Sr. No. Coal Mines deviations reported by a committee of 6 Government Officers Action by Penalty calculated Remarks
1 Not submitted Modified Mining Plan      
2 Illegally used a total area of 938.27 hectares of land for mining work, above land comprises of Private Inhabited area, Govt. Building, Pvt. Khalihan, Govt. Land against area of 687.93 hectares allotted to Usha Martin for coal mining etc. Additional Collector, Palamu   Payable penalty against compensation to be assessed.
3 In the Mining Plan the coal grade B & C are indicated which falls under the new grade G3 to G6, wherein they have paid only for G6 for the produced coal. HINDALCO has confirmed coal grade as G4. From 2008 to March 2015 District Mining Officer, Palamu 57,33,80,878  
4 In addition to 587.93 hectares, 250.07 hectares have been used for dump, Infrastructure, colony and other facilities, wherein this should be 250.34 hectares. It is clear from the Deviation plan that mining has been executed in 5.28-hectare area. In this manner 250-34-5.28=245.06 hectares have been used for dump, infrastructure, colony and facilities. District Mining Officer, Palamu 2,71,46,00,000  
5 OB dumped on area bearing coal reserves of 1.35 Lakh metric tons of coal. OB to be removed District Mining Officer, Palamu 6,97,00,000  
6 The abandonment cost related to Mines closure not paid by M/s Usha Martin Ltd. as specified in Mines Closure Plan District Mining Officer, Palamu 16,09,79,000  
7 Mines Closure Certificate not issued by Coal Controller District Mining Officer, Palamu   Payable penalty to be assessed.
8 Required money not paid to District Mineral Foundation   1,92,13,000  
  Required money not paid to National Mineral Exploration Trust   12,80,000  
9 For land filling of useful agriculture area, after loss assessment calculation to be carried out by the District Technical Department RO, Pandawa / Dist.  A O, Palamu / Land Pro Off, Palamu   Payable penalty to be assessed.
10 Appropriate compensation to Displaced Persons as per rules District Land Acquisition Officer, Palamu   Payable penalty against compensation to be assessed.
11 Prior permission required from Coal Ministry for transfer of coal and reconciliation of coal extracted and despatched to steel plant not reported by co. District Mining Officer, Palamu    
12 Investigation is required to be carried out for the land under app. 237.40 hectares area so that report can be obtained for jungle bush, displacement, farming, Government land, etc.  Forest Div. Officer, / Add. Collector, Palamu   Payable penalty against compensation to be assessed.
  Rs Three Hundred Fifty-Three Crores Ninety-One Lakhs Fifty-Two Thousand Eight Hundred Seventy-Eight Total 3,53,91,52,878           + + + + +



Black Face behind the Coal Mines



Investigation report of the committee to carry out assessment of the loss on amount of mining in the 687.93 hectare area (Kathautia coal mines) formerly leased out to M/s Usha Martin Ltd. for mining of coal mineral.


For assessment of the loss on amount of mining in the 687.93 hectare area (Kathautia coal mines) leased out to M/s Usha Martin Ltd. for mining of coal mineral, a committee formed on the basis of Dy. Commissioner, Palamu’s letter No. 732 dt. 01.10.2015 conducted various meetings and a letter was sent to submit required documents against various points raised in the letter. The investigation report is hereby submitted after reviewing the detected mistakes and mineral related loss assessment.


  1. M/s Usha Martin Ltd. was awarded mining lease for thirty (30) years by the Dy. Secretary of the mine and geology department of the Government vide letter Kh.Ni (Palamu)-15/05/523/M, Ranchi, dt. 07.03.2007 only in the 687.93 hectare area against the applied area of 938.27 hectares. (Annexure-1).
  2. The contract of Kathautia Coal Mines of M/s Usha Martin Ltd. was executed on 15.10.2007.
  3. The leaseholder had to submit a consent letter of farmers to the Deputy Commissioner before beginning the mining work under Section XXXII of the approval order. The leaseholder had to begin mining work after the Deputy Commissioner ascertained that the concerned farmers have been paid proper compensation for the land taken for the mining work.

In this connection, the District Mining Officer vide his letter no. 250 dated 14.03.2008 had asked the leaseholder to begin the work under the mining plan only after obtaining consent of the farmers as well as permission of the honorable Deputy Commissioner for the Gairmazarua area (Annexure 1A).”

  1. It is known that the mining lease of Kathautia coal mines was terminated vide supreme court’s order dt.24.09.2014 and the mining lease was awarded a new to M/s Hindalco Industries Ltd. vide GOI’s coal Ministry’s letter vesting order 004/3/2015/NA, Date 23.03.2015 and the new allottee M/s Hindalco Industries Ltd. was handed over the acceptance order with various conditions issued by joint secretary of mine and geology department of the Jharkhand Government vide letter No. Kh.Ni (Miscellaneous) 64/2015/15581 M, Ranchi 27.07.2015 (Annexure 2).
  2. The new allottee M/s Hindalco Industries Ltd., while executing the mining work related to kathautia coal mines, submitted the deviation plan with respect to the former lease holder M/s Usha Martin Ltd. regarding execution of mining work with non-compliance with the mining plan and from this it is seems that they violated the terms and conditions. (Annexure-3).
  3. M/s Usha Martin Ltd. was asked to submit point-wise replies against this office letter No. 202/DDM, Palamu, dt. 10.11.2015. (Annexure-4).


The details of the point-wise requested information and replies of M/s Usha Martin Ltd. are as follows:

Sl. No. Question Reply
1 Copy of modified mining plan against the approved mining lease on 687.93 hectare area It is clear from their reply that mining work was executed in the approved mining lease area of 687.93 hectares without carrying out modifications in the earlier approved mining plan for 938.00 hectare area. This is a violation of rule 22A.
2 Copy of progressive mines closure plan of the approved mining lease of 687.93 hectares area They didn’t submit the mines closure plan for 687.93 hectares and instead of that they have stated submission of draft mines closure plan related to 938.00 hectares. The submitted draft mines closure plan is not signed by the RQP and the covering letter related to its submission in the coal ministry is also not attached.

In the clause 1-6 of the mines closure plan, it is clarified that in addition to 687.93 hectare of developed mining lease, they have been allowed to use 250.07 hectares for dump, infrastructure /colony and facility. It means that mining activity has been carried out beyond the approved mining lease area.

3 Statement / Record related to land reclamation of the 687.93 hectare area, under approved mining lease. In the statement / record for land reclamation, it has been stated by them that the process of Bank Filling has been executed in compliance with the approved mining plan. It is clear that it has been done in compliance with the earlier approved mining plan for 938.27 hectares. Thus the work has been done in violation of the rule. Wherein, the approval for mining lease was granted to them only for 687.93 hectares.
4 Copy of pit opening permission from related department Pit opening permission was received by them for Rajhare A, Rajhare B and Pandawa top seam ride coal ministries letter No. CC/tech/open/Kathautia oc(UML)/07-08 dt. 28.02.2008, in which there was a condition mentioned that the surface  right of the above area must be taken before starting the mining work and must be done according to OB dumping mining plan.

They executed the mining work according to the formerly approved mining plan for 938.27 instead of preparing mining plan, which is in violation of the rule. Similarly, in the light of the opening permission received by them, they have not attached any surface right related document. For pit opening permission they submitted letter KCM/08/P/16 dt. 01.10.2008 to DGMS. (Annexure-5)


In clause 1 of the coal ministries letter 4701/1(6)/2002- CPAM/CA  dt. 13.01.2006 it is clear that the coal production must start by July……………………………..


5 Copy of coal grade of all pits-related document issued by the coal controller The documents submitted by M/s Usha Martin Ltd. related to coal grade are for the years 2012-13, 2013-14 and 2014-15, issued by the coal controller, wherein, provisional grade ROM G-6 is inscribed for coal seam of Pandawa Top and Rajhare B and it is also stated that the dispatch sample must be tested in the Govt. accredited laboratory so that final grade can be announced. In this regard they have not submitted any document related to dispatch sample analysis grade. (Annexure-7)

It is worth to note that they started coal mines opening in the year 2008-09 but for 2008-09 to 2011-12 no document has been attached related to annual grade declaration and there is no description attached for the grade related ro Rajhare A seam, however they took the opening permission for Rajhare-A.

6 Status of submission of financial assurance They have not submitted the financial assurance and only this has been stated that a provision has been made in the balance sheet. Therefore, they have not complied with the rules.
7 Permission letter from the Dy. Commissioner, Palamu for starting the mining work They have not taken permission from the Dy. Commissioner before starting the mining work which is in gross violation of the defined conditions in the permission to open the seam issued by the coal controller.
8 Undertaking for the farmer’s related compensation payment. Please submit detailed report if any case is under consideration in the court. From their reply related to farmer’s compensation it is clear that they have not paid the designated amount to the farmers and under the land acquisition process and mining work has been executed due to which a total of four (4) ongoing cases in the various courts. (Annexure-8)
9 Area and its acreage related complete information used additionally for mining work other than the allocated mining lease of 687.93 hectares area From the records, maps and Deviation Report it is clear that additional land has been used for mining work in addition to the allocated mining lease of 687.93 hectares. In the Mines Closure Plan (Draft) they have admitted that 250.07 hectares area has been used in dumping, infrastructure / colony /facilities. From the Working Plan submitted by them it is clear that they were allocated mining lease of 687.93 hectares and in addition to this other areas were used for External-O.B. Dump, explosive Magazine, reservoir and different structure etc. and area in excess of the leased area was used.
10 M/s Hindalco Industries Ltd. has submitted the Deviation Plan after accessing the loss caused due to deviation taken during the mining work under the former mining lease. Please submit the report along with the map for all the deviation taken by you during the mining work. From the Deviation Plan submitted by M/s Hindalco Industries Ltd., it is clear that M/s Usha Martin Ltd. has taken deviation by violating the rules during the execution of mining work. The mining work has not been executed in compliance with the Mining Plan.

Upon request, a copy of the Deviation Plan was handed over to their representative Shri. Niranjan Kumar Choubey on 21.12.2015. But they have not submitted any reply which makes it clear that they have accepted the Deviation work.

11 Report related to opening of Escrow account by you. It is clear from their reply that that they have not opened the Escrow account, which should have been opened in compliance with rules.
12 Report related to liquidation by you of the violations after all the inspections conducted till date by DGMC and IBM From the letters related to objections raised by DGMC after conducting the inspections it is clear that they have taken violations from time to time. They have only submitted the inspection related reports only for 2012, 2013 and 2014. Wherein the work started in 2008 itself.


13. Payment related proof against the thirty percent amount of royalty for coal dispatched from 12.01.2015 to 31.03.2015 under the rule 2 (B) under the Mines and Minerals  Rule,2015 (Subscription to the District mineral institute) They have not made payment for thirty percent amount of Royalty for the dispatches made for the period 12-01-2015 to 31-03-2015 against subscription to the District mineral institute. In addition to this the NMET amount of 2% of the royalty is also payable.
14. The above mining-lease area comprises of jungle and bush type land, please submit report. They have informed that they do not have any information regarding jungle and bushes in the mining lease area, wherein they have submitted Affidavit in this regard, that in case in future jungle-bushes are found in the leased area then they shall pay compensation.

It is reported in the letter 1400/S, dt.19.10.2015 issued by Dy. Commissioner, Palamu, that the 1731.17 acre (700.87 hectare) area surveyed under the Kathautia coal mines, an area of 344.16 acre is jungle bush type. Therefore compensation is payable.



The following is the amount of payable penalty on account of violation and non-compliance of different rules by M/S Usha Martin Limited.

  1. They have not submitted the Modified Mining Plan and from the reply and attached map it is clear that they have used a total area of 938.27 hectares of land for mining work. From the Land Use details given in the Mining Plan, it is clear that the above land comprises of Private Inhabitated area, Govt. Building, Pvt. Khalihan, Govt. Land etc. On the basis of the records and described land list in the Mining plan, the Additional Collector can be asked to calculate the payable penalty against compensation to be paid the displaced people and amount payable for using Government  land for commercial purposes, according to the rules  so that demand letter can be issued to M/S Usha Martin Limited.

(Action-Additional Collector, Palamu)


  1. In the Mining Plan the coal grade B & C are indicated which falls under the new grade G3 to G6, wherein they have paid only for G6 for the produced coal. It must be known that after terminating the mining lease held by them, this coal block has been allotted to M/S Hindalco Industries limited and for calculating the Performance Security amount, M/S Hindalco Industries Limited vide their HIL/IH/KAT/33, dated 10.08.2015 , has taken in to account coal grade G4 for Kathuthia  mines and Bank Guarantee for the said amount has already been submitted. Therefore demand can be raised against royalty taking in to account G4 grade. Because in the different letters of 2012-13, 2013-14, 2014-15 of coal ministry related to Annual grade of declaration of coal seam, only proposed provisional grade of coal from Pandawa top seam and Rajhara B seam has been stated and it clearly states  that “All proposed grade of seams of Kathautia open cast coal mine of Usha martin Ltd. Are to be declared on provisional basis which should be finalized within the stipulated period supported with results (proximate analysis and GCV by Bomb calorimeter) of dispatch samples from any Govt. Accredited laboratory preferably CIMFR.

The grade declarations are to be kept provisional till its finalization within six months of such declaration, based on dispatch sample analysis results. In this regard they have neither taken any action nor submitted any document.


On the basis of calculations for royalty against dispatched coal of grade B and presently grade G-4 from the Kathautia coal mines by M/S Usha Martin Limited, the calculation for the differential royalty payment is as follows, which can be demanded (Annexure-12 to 15)


  • On the basis of price of grade G-4 coal Rs.1650/ton, from December 2008 to February2011, the differential payable royalty for the dispatched coal on the basis of (RR=a +bp) Rs.173/ton is- 3,29,781.40 M.ton

X 173


Payable royalty amount                             –                       Rs.5,70,52,182.00

Paid royalty amount                                  –           (-)          Rs.5,01,77,795.00


Differential payable royalty amount                    –             Rs.68,74,387.00



  • On the basis of price of grade B coal Rs.3990/ton, from March 2011 to December 2011, the differential payable royalty for the dispatched coal on the basis of (Rr=a +bp) Rs.290/ton is- 2,42,056.56 M.ton

X 290


Payable royalty amount                             –                       Rs. 7,02,04,812.00

Paid royalty amount                                  –           (-)          Rs. 3,51,12,198.00


Differential payable royalty amount                    –           Rs. 3,50,92,614.00


  • On the basis of price of grade G-4 coal Rs.4130/ton, from January 2012 to May 2013, the differential payable royalty for the dispatched coal on the basis of 14% (Rs.578/ton) is-                                                                                  8,40,640.83 M.ton

X 578


Payable royalty amount                             –                       Rs. 48,58,90,400.00

Paid royalty amount                                  –           (-)          Rs. 22,49,85,955.00


Differential payable royalty amount                    –           Rs. 26,09,04,445.00


  • On the basis of price of grade G-4 coal Rs.3490/ton, from June 2013 to March 2015, the differential payable royalty for the dispatched coal on the basis of 14% (Rs.489/ton) is-                                                                               14,25,759.78 M.ton

X 489


Payable royalty amount                             –                       Rs. 69,71,96,530.00

Paid royalty amount                                  –           (-)          Rs. 42,66,87,098.00


Differential payable royalty amount                    –           Rs. 27,05,09,432.00


Therefore the after the payment of total royalty, the payable differential royalty amount for 1+2+3+4 is Rs. 57,33,80,878 (Fifty seven crores thirty three lacs eighty thousand eight hundred and seventy eight only).

(action:-District Mining Officer, Palamu)


  1. It has been accepted by them in the draft of Mines Closure Plan, that in addition to 587.93 hectares 250.07 hectares have been used for dump, Infrastructure, colony and other facilities, wherein this should be 250.34 hectares. It is clear from the Deviation plan that mining has been executed in 5.28 hectare area. In this manner 250-34-5.28=245.06 hectares have been used for dump, infrastructure, colony and facilities.

In compliance with the order passed by the honorable supreme court on 18.04.2013 in the case Writ petitioner (civil) No.562 of 2009 Samaj privartana samudaya & others Vrs State of Karnatka, at the rate of Rs. 1.00 crore per hectare as compensation/penalty for using area beyond the leased area for O.B. dump, road, reservoir, the amount payable is Rs. 245.06 crores  and on execution of mining work in 5.28 hectare area beyond the leased area, according to the deviation plan, the amount of compensation / penalty at the rate of Rs. 5.00 crores per hectare the payable amount is 26.40 crores. Therefore, a total amount of Rs. 271.46 crores is payable, for executing mining work beyond the mining lease area, O.B. dump, road, office, colony, etc., against compensation / penalty by M/s Usha Martin Ltd..

(Action:- District Mining Officer, Palamu)


  1. According to the Deviation Plan submitted by M/s Hindalco Industries Ltd., M/s Usha Martin Ltd. has paid tax on 4.97 hectares of the mining lease area on O.B. dump, D2 coal bearing area. Below the above dump there is a reserve of 1.35 lac metric ton of coal. For mining it, 9.3 lacs cubic meter O.B. has to be removed. Whose value at the rate of Rs. 75 per cubic meter comes approximately Rs. 6.97 crores.

(Action:- District Mining Officer, Palamu)


  1. The abandonment cost related to Mines closure is payable by M/s Usha Martin Ltd.. For this annual closure cost was calculated with reference to Coal Mines Notification No. 55011-01-2009-CPAM, 27th Aug. 2009 and as stated in the draft of the Mine Closure Plan, is as follows :
1 1st year 2008-09 197.71 lacs
2 2nd year 2009-10 207.60 lacs
3 3rd year 2010-11 217.98 lacs
4 4th year 2011-12 228.88 lacs
5 5th year 2012-13 240.32 lacs
6 6th year 2013-14 252.34 lacs
7 7th year 2014-15 264.96 lacs
Total 1609.79 lacs


This amount should have been deposited in Escrow Account in the form of Financial Assurance, which can be deposited.

(Action:- District Mining Officer, Palamu)


  1. The Mines Closure Certificate was supposed to be issued by the Coal Controller but due to its non-availability it is not possible to carry out the exact estimation of the loss.

(Action:- District Mining Officer, Palamu)


  1. 30% of the Royalty amount equivalent to Rs. 9213 crores is due to be paid to District Mineral Foundation which is applicable since 12th January 2015 and 2% of the Royalty amount equivalent to Rs.0.128 crores is due to be paid to National Mineral Exploration Trust.

(Action:- District Mining Officer, Palamu)


  1. The Mines and Geology Department vide their letter No. KH.NI.Palamu 15/05-523/M, Ranchi dt. 07.03.2005 allotted the mining lease to M/s Usha Martin Ltd. for Kathautia and other mines only an area of 687.93 hectares out of a total area of 938.27 hectares and as per clause XII the land suitable for agriculture use was not acquired on permanent basis and the mining work was carried out by private arrangement. They have to carry out Back filling related to mining work as per the instructions of Dy. Commissioner or any other authorized officer.

From the deviation plan submitted by M/s Hindalco Industries Ltd. it is also highlighted that the former allottee M/s Usha Martin Ltd. has carried out Back Filling / Land reclamation of 5.583 hectares area upto 31.03.2015. However, according to the mining plan they were supposed to carry out Back filling/land reclamation of 50.45 hectares area upto the fourth year. M/s Usha Martin Ltd. has executed coal mineral excavation work in 103.087 hectares area by 31.03.2015.

According to the mining plan M/s Usha Martin Ltd. was supposed to collect Top Soil for Top Soil Management purposes in 4.00 hectares marked up area but until 31.03.2015 no marked up area was found for collection of the Top Soil. The entire Top Soil plantation was used and for future Top Soil was not found in any marked up area, this is a serious issue.

In this regard, for land filling of useful agriculture area, after loss assessment calculation to be carried out by the District Technical Department, demand letter may be issued to M/s Usha Martin Ltd..


(Action:- Regional Officer, Pandawa / District Agriculture Officer, Palamu / Land Protection Officer Palamu)


  1. An order may be issued to the related officer for issuing the demand letter to M/s Usha Martin Ltd. against the arrangement and appropriate compensation to be paid after calculation according to the rules for the purposes of resettlement of the displaced persons due to the mining lease.

(Action:- District Land Acquisition Officer, Palamu)


  1. In the clause No. 5 of the permission order it is described that for the transferring the coal extracted from the Captive Block prior permission is required from the mines ministry of Central Government. The District Mining Officer. Palamu can be instructed to obtain the detailed report, of total quantity of extracted coal dispatched to captive plant and quantity received in DRI plant in located in Gamharia of Saraikela district, through District / Assistant Mining Officer, Saraikela.

(Action:- District Mining Officer, Palamu)


  1. In the clause No. 8 (E) of the allotment order, there is a mention of forest land and jungle bush type of land. It is known that subsequently approximately 700.87 hectares of area was verified and vide letter No. 1400/Ra, dt. 19.10.2015 issued by the Dy. Commissioner of Palamu, it is informed that 344.16 acres of land in the mining lease area has been found to be jungle bush land. (Photocopy attached). The forest Division officer, Palamu, may be informed in writing to carry out the calculation of the loss compensation value and appropriate action as per the rules. M/s Usha Martin Ltd. used a total of 938.27 hectares of area for mining work. Therefore, investigation is required to be carried out for the land under app. 237.40 hectares area also, so that report can be obtained for jungle bush, displacement, farming, Government land, etc.. Therefore, it would be appropriate to take future action after completion of the investigation by the Additional Collector. It is worth noting that from clause 6 (E-ii) of the allotment order and lease it is clear that in the light of the order passed by the Honorable Supreme Court, that they shall carry out the investigation at their level so as to find out whether any plot does not come under the category of jungle-bush under applied land. M/s Usha Martin Ltd. has submitted an affidavit and its photocopy is attached herewith for consideration. (Annexure  -16).

On the basis of the discussions on the available documents and replies of M/s Usha Martin Ltd. by the Committee and investigation report has been prepared.

(Action :- Forest Divisional Officer, Northern Forest Division, Palamu / Add. Collector, Palamu)



Sd/-                                          Sd/-                                          Sd/-

Divisional Officer                    Land Protection Officer          District Agriculture Officer

Pandawa, Palamu                               Palamu                                    Palamu

10.08.16                                     10.08.16                                  10.08.16





Sd/-                                                      Sd/-                                          Sd/-

District Mining Officer            Land Development Dy.Collector         Dy. Director, Mines

Palamu                                               Palamu                           Palamu circle, Palamu

10.08.16                                               10.08.16                                    10.08.16






5.80 lakh crore in bad loans: Let’s pray for India’s bleeding banks

The Rs 13 lakh-crore pile of bad loans of India’s public sector banks now amounts to more than the GDP of countries like New Zealand, Kenya, Oman and Uruguay. A new IMF report states Indian banks are in a poor state compared to the notoriously messy banking of China.

The financial results of major public sector banks (PSBs) show that out of 25, 15 banks have sunk in the red in the March quarter of FY 2016, though they registered profits during the same period last year.

The awful state of PSBs has spoiled the Modi government’s two-year celebration party.

Worries over Indian banks are getting global and being construed as a major failure of Modi government.

Bleeding banks not only hinder prospects of lower interest rates but also pull down the implementation of several government schemes that hinge on banking services.

The data is scary. As per the March quarter data of 2015-16, the total pile of PSB bad loans has grown Rs 3.09 lakh crore to Rs 5.8 lakh crore in the last one year alone. In the quarter ending March 2016, PSBs’ bad loans grew by Rs 1.5 lakh crore.

As the gross non-performing assets (NPAs) of banks have cumulatively swollen to 1.5 times of the market value of PSU banks, for every Rs 100 invested in shares of public sector banks, investors carry the burden of Rs 150 as NPAs. At the end of FY16, 17 per cent of PSBs’ assets are stressed.

According to a report by Ambit Capital, if only a third of these assets is written off, that would imply that nearly 50 per cent of the shareholders’ equity in PSBs will be written off by the end of FY18.

In the absence of a credible government strategy to address the NPA issue, last year the Reserve Bank launched a campaign to clean the balance sheet of banks under which the banks had to set aside and reserve a certain sum against the bad loans (provisioning).

NPAs are declining, but out of 25 government banks, 15 have been caught in the whirlpool of losses due to aggressive provisioning.

The Swachta Mission of banking balance sheets is expected to continue for some more time, which means the banks have to lose more profits in the coming quarters.

Those trying to put Reserve Bank of India (RBI) governor Raghuram Rajan in the dock over expensive credit must cast a glance at the balance sheet of banks.

In May, the demand for credit fell below 10 per cent, which shows that banks are not getting new business. The deposit growth in the banking system slowed to a 50-year low of 9.7 per cent in FY 16.

NPA and provisioning is now eating into the capital base of banks. In fact, the reason why interest rates are higher is not because RBI’s policy of inflation control but the poor state of banks that prevents them to transmit lower rates to public.

The so-called banking reform programme Indradhanusha, that came last August, has failed to offer solace to banks reeling under distress. Indradhanusha offered homeopathy for banking ailments while the sector was waiting for radical reforms like creation of a bad bank to handle NPAs and aggressive divestment of PSU banks.

The capital base of banks is shrinking at such an alarming speed that the government will have to come forward to rescue them.

It might be a Hobson’s choice for the government which runs the risk of breaching the fiscal deficit target, but given the inability of banks to raise capital by themselves, parking money in them from the budget becomes important to keep them viable for lending. If government doesn’t recapitalise PSBs, credit constraint will hurt growth in coming quarters.

Based on FY16-end numbers, the PSBs need $30 billion (36,000 cr rupees-equivalent to nearly 1.5 per cent of our GDP) equity infusion over FY17 and FY18.

Such a figure compares to the $4 billion budgeted by the finance minister for infusion into PSBs in FY17 and the $7 billion promised by the Finance Ministry for PSBs over FY17-19.

It is highly unlikely that the government will be able to find the resources required to recapitalise the ailing PSBs. It is beyond comprehension why the government chose to burden the banks with several populist missions at a time when they were going through their most difficult time after liberalisation.

Such (mis)use of banking was resorted to in the ’70s and ’80s when loan melas (loan fairs) were organised. Nearly half a dozen big bang schemes, launched over the last two years, hinge on big banks.

Mudra Bank, Start-up India and loan against gold are essentially the programmes made for low-cost credit distribution, while in Jan Dhan, insurance plans and direct benefit transfer services are implemented through banking network, thus adding to the cost of banking operations.

If the Modi schemes are not showing an impact on ground, the reason possibly could be that the financial condition of the banks doesn’t allow them to support such initiatives.

Economy requires low-cost credit and strong banking, not populist schemes. The government would do well to wake up from the party hangover of its second anniversary and set the ball rolling for strong banking reforms that it has been evading so far.

If the banking crisis deepens further, it will certainly dampen the hopes of growth revival that is expected to come in on good monsoon.

In addition, it may hurt the credibility of India’s financial system, which presently is better than that of several other countries.


Fear of CBI bizzare; apply wisdom in funding NPA: Parliamentary panel to banks

Finding banks working under the fear of CBI and CVC as “bizzare”, a Parliamentary panel has asked lenders to take decision on financing of stressed assets as per their “own wisdom” and on the basis of the project’s viability.

Finding that total NPAs of Rs 2.6 lakh crore may go up to Rs 4 lakh crore on account of defaulting infrastructure projects, the Parliamentary Standing Committee on Transport, headed by Kanwar Deep Singh, also recommended banks can be empowered to make recovery of bad debts.

“The Committee finds it bizzare that the banks work under the fear of CBI and CVC… Banks should take a decision on its own whether a particular NPA is to be financed or not and it should be done on the bank’s own wisdom under the permissible capacity of the banks,” the panel said in a report which was tabled in Parliament last week.

The panel suggested that banks should see viability of the project — whether lending some more money will give their due returns.

“Every decision if taken in a transparent way and approved by a Committee consisting of more than two officials based on laid-down principles, there should not be any cause for fear of investigation by CVC, CBI and other enforcing agencies,” it said.

Noting that model concession agreement of NHAI was not acceptable to banks, it said that the agreement may be circulated to all the banks and financial institutions and the input and feedback received may be incorporated.

“Every effort may be made to ease out the bad debts. It is good that the RBI has already taken steps for converting debts into equity and the contractors are allowed to get out of the projects in case of a default. Need for higher government allocation is also emphasised and the banks NPA may be supported by government allocation,” it said.

Asking the government to consider empowering the banks adequately to make the recovery of bad debts easier it said, “For example, in case of a default, the banks may be allowed to take over the entire company.”

Saying that total NPAs of banks due to defaulting infrastructure projects is at Rs 2,60,000 crore and may go up to Rs 4 lakh crore, the committee also said the banks have demanded that the money of the loan given to road sector be allowed to be restructured.

This “may be considered along with proposal for making adequate provisions in the model concession agreement for cost escalation of the projects. In case of time overrun due to the reasons which are beyond the control of the promoters the projects may be re-assessed and the project cost may be refixed accordingly also needs to be seriously considered for adoption,” it recommended.


StatsGuru: Tackling the NPA problem in public sector banks

The financial position of India’s public sector banks (PSBs) has deteriorated sharply over the past financial year. As Table 1 shows, gross non-performing assets (NPAs) rose to 9.5 per cent of total advances in 2015-16, up from five per cent the year before.

But as most banks didn’t adequately provide for these loans, it has put pressure on their solvency position. If PSBs were to currently provide for all their bad loans, it would erode 66 per cent of their total net worth, as shown in Table 2.

At the aggregate level, PSBs reported a loss of Rs 17,672 crore in 2015-16, down from a profit of Rs 36,350 crore in 2014-15, as shown in Table 3. As a result, their stock prices have tanked, eroding crores of rupees in market capitalization. The Nifty PSU Bank Index declined from a high of 4,419.25 in January 2015 to 2,913 on July 20, 2016.

Many analysts fear the current capital levels of PSBs are simply not enough to cover the actual extent of bad loans in the system. As shown in Table 5, United Bank, Syndicate Bank, Indian Overseas Bank (IOB) and UCO Bank have the lowest Tier-I capital ratios, ranging from 7.6 to 7.9 per cent. And while the government has budgeted to provide Rs 25,000 crore in 2016-17 for bank recapitalization, it ended up giving Rs 19,950 crore in 2014-15, as shown in Table 6. Analysts fear that this amount may not be enough.

A more prudent solution for a cash-strapped government would be to sell its stake in PSBs. While this is politically a difficult move, lowering stakes in the biggest loss-making PSBs such as IDBI, IOB, Bank of India, Punjab National Bank and Bank of Baroda to 51 per cent might be politically more acceptable.



Insights into Issues: Non Performing Assets

What are NPAs

A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.

1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.

2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

3. Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”


Status of NPA:


NPA problem is one of the most severe plaguing the Indian Banking sector posing questions over the stability of Indian Banking System. Raghuram Rajan, the ex Governor of RBI has identified the NPA problem as a major challenge facing the Indian Banking Sector. The problem which was largely hidden earlier as Banks used to do window dressing of their account statement has now come to the forefront after Rajan exhorted the banks to clean up their asset books by March 2017. Resultantly this led to 29 public sector banks writing off Rs1.14 Lakh Crore of bad debts between 2013 -2015, much more than what they had done in the preceding 9 years.


  • The gross bad loans of 39 listed Indian banks, in absolute term, rose 92% in fiscal year 2016 to Rs.5.79 trillion even as after provisioning, the net bad loans more than doubled to Rs.3.38 trillion.
  • In percentage terms, the average gross non-performing assets (NPAs) of this group of banks rose from 4.41% of loans in 2015 to 7.91% in 2016; net NPAs in the past one year rose from 2.45% to 4.63%.
  • Public sector banks, which have close to 70% market share of loans, are more affected than their private sector peers. Two of them have over 15% gross NPAs and an additional eight close to 10% and more.
  • If we include restructured loans as well as those loans that have been written off, the total stressed assets could be as much as one-fourth of loans, at least for some of the government-owned banks.


Impact of NPAs on Banks:


  1. Banks have to adhere to the provisioning norms set by RBI for the bad loans which eats into their profitability. This leads to banks having lesser capital to deploy, shareholders losing money and banks finding it tough to survive in the market
  2. If banks do not classify an asset as NPA, they naturally have more money to advance to earn interest income on. If large NPAs goes unreported, the bank could reach a situation, where it has advanced more money than it has available leading to a situation of technical bankcruptcy.
  3. In light of attaining the Bessel norms, the burden on maintaining Capital Adequacy Ratio increases
  4. It also affects the competitive position of banks
  5. For economy, it is disadvantageous as banks become more circumspect in giving loans which affect the credit offtake in economy. India is still an economy which is largely dependent on banks to raise capital as the bond market is not that well developed. This leads to declining Gross Capital Formation affecting economic growth.
  6. Rising of NPAs will lead to a crisis of confidence in the market. The price of loans, i.e. the interest rates will shoot up. Shooting of interest rates will directly impact the investors who wish to take loans for setting up infrastructural, industrial projects etc.
  7. It will also impact the retail consumers like us, who will have to shell out a higher interest rate for a loan.
  8. This will hurt the overall demand in the Indian economy which will lead to lower growth rates and of course higher inflation because of the higher cost of capital.
  9. The trend may continue in a vicious circle and deepen the crisis.


Reasons for growth


  • Governance Issues


        1. Diversion of funds by companies for purposes other than for which loans were taken
        2. Due diligence not done in initial disbursement of loans. Eg: loans given to road sector even before acquisition of land by the contractors. Agreed to TPCs (Total project costs) much higher than assessed by NHAI.
        3. Inefficiencies in post disbursement monitoring of the problem
        4. Restructuring of loans done by banks earlier to avoid provisioning. Post crackdown by RBI, banks are forced to clear their asset books  which has led to sudden spurt in NPAs
        5. During the time of economic boom, overt optimism shown by corporates was taken on face value by banks and adequate background check was not done in advancing loans
        6. In the absence of adequate governance mechanism, double leveraging by corporates, as pointed out by RBI’s Financial Stability Report, is also a reason for increasing bad loans
        7. RBI Governor Rajan has pointed to the prevalence of “riskless capitalism” wherein time of economic swing, the corporate make hay, but when they face problems, resort to legal route, leveraging etc leading to problems galore for the banks


  • Economic Reasons


        1. Economic downturn seen since 2008 has been a reason for increasing bad loans
        2. Global demand is still low due to which exports across all sector has shown a declining trend for a long while now
        3. In the case of sectors like electricity, the poor financial condition of most SEBs is the problem; in areas like steel, the collapse in global prices suggests that a lot more loans will get stressed in the months ahead. Other stressed sectors include infrastructure, textiles and mining
        4. Other stressed sectors include infrastructure, textiles and mining
        5. Economic Survey 2015 mentioned over leveraging by corporate as one of the reasons behind rising bad loans


  • Political reasons


        1. Policy Paralysis seen during UPA 2 regime affected several PPP projects and key economic decisions were delayed which affected the macroeconomic stability leading to poorer corporate performance
        2. Crony capitalism is also to be blamed. Under political pressure banks are compelled to provide loans for certain sectors which are mostly stressed


  • Resolution issues


      1. In the absence of a proper bankruptcy law, corporate faced exit barriers which led to piling up of bad loans
      2. Corporates often take the legal route which is time consuming leading to problems for the banks


Traditional solution

    1. Appointment of nodal officers in banks for recovery at their head office, zonal office
    2. Thrust on recovery of loss assets by banks
    3. Close watch on NPA by picking up early warning signals and ensuring corrective action
    4. Directing state level bankers to be more proactive in resolving issues with state govt
    5. Designating ARC as resolution agent of banks



Laws relating to NPA and Bankcruptcy

  • SARFAESI – The Act empowers Banks/ Financial Institutions to recover their NPAs without the intervention of the court, through acquiring and disposing secured assets without the intervention of the court in case of outstanding amounts greater than 1 lakh. SARFAESI, it is accused, has been used only against the small borrowers primarily from MSME sector
  • Recovery of Debts Due to Banks and Financial Institutions (DRT) Act: The Act provides setting up of Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs) for expeditious and exclusive disposal of suits filed by banks / FIs for recovery of their dues in NPA accounts with outstanding amount of Rs. 10 lac and above. DRTs are overburdened leading to slow disposal of cases
  • Lok Adalats:  Section 89 of the Civil Procedure Code provides resolution of disputes through ADR methods such as Arbitration, Conciliation, Lok Adalats and Mediation. Lok Adalat mechanism offers expeditious, in-expensive and mutually acceptable way of settlement of dispute
  • Under banking regulation act 1949, RBI is empowered to monitor the asset quality of banks by inspecting record books


Solutions proposed by RBI:


  • Restructured standard account provisioning has been increased to 5% making it easier for banks to go for restructuring. On the flip side, this has the potential to enhance tendency of evergreening of loans
  • RBI has directed banks to give loans by looking at CIBIL score and is encouraging banks to start sharing information amongst themselves. This is to deal with cases of information asymmetry. RBI has directed banks to report to Central Repository of Information on Large Credit (CRILC) when principle/interest payment not paid between 61-90 days
  • RBI has asked banks to conduct sector wise/activity wise analysis of NPA
  • SEBI has eased norms for banks to convert debt of distressed borrowers into equity
  • 5/25 scheme
    • For existing and new projects greater than 500 crores and also for existing projects which have been classified as bad debt or stressed asset, bank can provide longer amortization periods of 25 years with the option of restructuring loans every 5 or 7 years
    • The advantage of this scheme is that it provides for longer lending period with inbuilt flexibility. Shorter lending periods leads to companies stretching their balance sheet to pay back loans
    • From bank’s point of view it is helpful as freshly restructured asset is considered as bad debt and requires 15% provisioning by banks against such loans leading to erosion of profitability for banks
  • Strategic Debt Restructuring Scheme
    • This scheme provides for an alternative to restructuring. Wherever restructuring has not helped, banks can convert existing loans into equity. The scheme provides for creation of Joint Lenders Forum which is to be given additional powers with respect to
      • Management change in company getting restructured
      • Sale of non core assets in case company has diversified into sectors other than for which loans were guaranteed
      • Decision by JLF on debt restructuring by a majority of 75% by value and 60% by number
    • On the positive side, willful defaulters are dissuaded as they fear the loss of their company
    • However there are several issues with the scheme
      • Banks do not have expertise of managing companies
      • The Joint Lenders Forum mechanism has an inherent conflict between large banks and small lenders. The large banks have huge exposure and thus they want to restructure the loans so as to avoid provisioning. The smaller lenders fear arm twisting by large banks. Since they have less exposure they are unwilling to throw good money after bad and prefer to sell their exposure to ARCs as HDFC did in case of Essar Steel
    • Assessment of SDR
      • SDR is not performing too well. Of the 21 cases in which SDR has been invoked, only 4 have been closed. The problems are:
        • Difficulty in finding buyers
          • Buyers demanding prices that are unacceptable
          • Creditor’s concern over their source of funding and credibility
          • In the absence of potential buyers, bank wouldn’t want to hold onto these assets indefinitely. Unless and until a mechanism is devised which charts out a course of what to do thereafter, it doesn’t make much sense to do this conversion
        • Disagreement over valuations
          • Banks not willing to take severe haircuts
          • Problem particularly acute in the infra sector where the valuations have drastically declined over the past 2-3 years
        • Choice of merchant bankers used in SDR Process has a huge impact on the pace of the process. Quick resolution is necessary as otherwise provisioning for bad loans eats a major chunk of the bank’s profit
  • Scheme for sustainable structuring of stressed assets – This allows banks to split the stressed account into two heads – a sustainable portion that the bank deems that the borrower can pay on existing terms and the remaining portion that the borrower is unable to pay(unsustainable). The latter can be converted into equity or convertible debt giving lenders a chance to eventually recover funds if the borrower is unable to pay. The Scheme will help those projects which have started commercial operations and have outstanding loan of over Rs 500crore. Banks will also need to set aside higher provisions if they choose to follow this route.
    • Advantages of new scheme
      • To help restore credit flow to stressed sectors such as steel etc as credit lending condition have been eased in the scheme
      • Banks can rework their stressed accounts under the oversight of an external agency. This means greater transparency in functioning of banks. This is a provision of the scheme itself. Banks had earlier complained of activism by investigative agencies in probing bad debt which made it difficult for them to go for restructuring in even genuine cases
      • This scheme would not only strengthen the lenders’ ability to deal with stressed assets, but would also put real assets back on track, benefitting both banks and the promoters of troubled entities.
    • Challenges
      • Evergreening of loans by banks
      • Distinction between sustainable and unsustainable debt might lead to problems later on
      • In its current form, S4A favours promoters more than banks as banks have to provide for the loss of interest from their profit, while promoters get away with lower interest payment
      • The scheme can only be used for operational projects. Banks cannot reschedule or reprice the debt that is remaining after converting part of it into equity. Also, they have to assess the sustainable portion of the debt based on current cash flows rather than any future projection of cash flows. Due to this, many firms would not be able to do much for some power projects which are still under implementation.
      • It also does not allow for banks to change the terms and conditions of the loan. This would mean that not too much support to the sustainable part of the debt can be extended.
      • Another concern could be the high level of equity dilution that may result from a scheme of this nature. This could be negative for shareholders and may also reduce the incentive for promoters to actually turn around the company.


Measures announced by government

  • Government has announced recapitalization of the bank to the tune of 70000crore. However, given the situation, this amount is grossly inadequate. Government will have to find a way to increase the capital it provides to state-owned banks. An upfront capital infusion, along with reforms to ensure its proper usage, is the best way to reduce the pain of the bad loan clean-up.
  • Finance Minister has recently mentioned setting up of stressed asset fund in association with banks that can provide equity or debt capital
    • It  is different from an ARC as the assets would remain on the books of the banks whereas ARC transfer the acquired assets to one or more trusts at the price at which financial assets were acquired from the originator
    • A different mechanism from ARC has been proposed as experiences so far say that setting up yet another ARC is pointless. There are a number of existing ARCs in the market, and many large global funds are planning to enter the segment. Among these, many are bank-sponsored ARCs. They have done little good because the banks and the ARCs have failed to agree on the price at which assets are to be sold. Besides, the recovery track record of ARCs has been modest at best.


India’s big bad loan problem

The latest quarterly results show that state-owned banks are struggling because of stressed assets, impacting their profitability and loan growth.

If there were any hopes about a quick end to India’s bad loan saga, the earnings season for the July-September quarter has dispelled them very quickly. Most state-owned banks which have reported their July-September quarterly earnings figures so far have witnessed asset quality pressures, which have impacted their profitability and loan growth.

But how severe is the Indian bad loan problem? A look at the ratio of bad loans or non-performing assets (NPA) across the world shows that India’s NPA levels place it among the worst-performing major economies of the world.

A comparison of the non-performing loan ratio of 25 large Asia-Pacific banks, which are part of the Bloomberg Asia Banks Large Cap Index shows that the large Indian banks have the worst NPA ratio when compared to their large cap peers in the region.

The three Indian banks included in the Bloomberg Asia Banks Large Cap Index are the State Bank of India, ICICI Bank and HDFC Bank, which are relatively in better shape compared to most of their domestic peers. Yet, India’s performance is worse than that of other economies in the region.

The major culprits behind the rise in bad loans over the past few quarters have been state-owned banks. The July-September quarter results for Indian banks so far show a continued divergence between the private and the state-owned banks. The net profit of most of the private banks (which have reported their results so far) rose in the September quarter even as state-owned banks reported higher provisioning for bad loans rose and consequently lower profits.

Among the private banks, Yes Bank, Kotak Mahindra Bank, IndusInd Bank and HDFC Bank reported growth in their respective net profits, in the range of 20-31% over the year-ago period. On the other hand, most of the state-owned banks so far have reported a decline in their profits for the September quarter compared to the year-ago period. While Central Bank of India and Bank of Maharashtra reported net losses for the quarter, the net profit for Syndicate Bank and Union Bank fell by more than 70% each. There were some exceptions in both categories such as the private lender Axis Bank, which posted an 83% decline in profit owing to increased provisions for bad debt, and public sector lender Vijaya Bank which witnessed a 34% rise in profit compared to a year ago. But overall, the state-owned banks have disappointed far more than the privately-owned ones.

The difference between the state-owned banks and private sector banks is starker when we compare their asset quality. Gross non-performing assets (NPA) as percentage of total loans and advances is higher in public sector banks than private banks and the trend appears to have continued in the September quarter as well, based on the results of major banks which have reported their quarterly earnings so far.

Mint calculations show that the weighted-average-of-NPA ratio is close to 11% for the eighteen major state-owned banks, much higher than the estimated 3.2% NPA ratio for six large private sector banks. The 11% NPA ratio for state-owned banks might be an under-estimate as it is partly based on April-June quarter results, given that several large state-owned banks are yet to declare their July-September quarter results.

To be sure, much of the recent decline in banks’ reported asset quality is attributable to recognition of legacy problems and does not imply that assets have suddenly turned sour over the past few quarters. The effervescent lending of the boom years and delayed recognition by banks forced the central bank to tighten norms on recognition of bad or impaired assets over the past couple of years.

The Reserve Bank of India (RBI) had announced the Strategic Debt Restructuring (SDR) scheme in June last year and subsequently conducted an asset quality review (AQR), forcing lenders to recognize more loans as non-performing and set aside more funds as provisions, leading to some nasty surprises.

The aggregate non-performing assets of the banking sector stood at Rs. 6.5 trillion, or 8.6% of loans, at the end of June 2016. Adding another 3.5% of restructured loans, the total amount of “impaired” debt in the banking sector increases to 12.1%, according to a 19 September Credit Suisse research report. The report also warned that another 4.5% or Rs.3.3 trillion of loans are still to be recognized as NPA or restructured assets, suggesting that the actual ratio of impaired assets of India’s banking sector is over 16%.

“We estimate that another 4.5% of loans are stressed (with a large share from the power sector) and therefore expectations of a turn in asset quality cycle are premature,” wrote Ashish Gupta and other analysts of Credit Suisse in the aforementioned report.

The overhang of bad debt has not only hit the profitability of state-owned banks but also affected their ability to grow their loan book. This has serious repercussions on India’s overall credit growth as state-owned banks account for two-third of the overall credit disbursed by scheduled commercial banks. The former RBI governor Raghuram Rajan had argued in a speech earlier this year that “the slowdown in credit growth has been largely because of stress in the public-sector banking and not because of high interest rates”.

Given the scale of the bad loan problem, bankers are likely to remain extremely cautious in granting loans and approving new projects over the next few quarters. This means that a broad-based revival in India’s investment cycle is unlikely to happen anytime soon.

Explained in 5 charts: How Indian banks’ big NPA problem evolved over years

By Dinesh Unnikrishnan and Kishor Kadam

The writing was on the wall; just that no one wanted to acknowledge it. The bad loan crisis that has gripped India’s Rs 95 trillion banking sector didn’t happen overnight.


For years, Indian lenders, especially state-run banks, were engaged in volume game to balloon their balance sheets and appease their promoter (the government). That has been so ever since nationalization of these banks happened in two (beginning 1969). Governments often treated these banks as their extended arms and used them for populist measures.

There used to be competition among sarkari banks to flag their total business number on front-pages of national newspapers but very little attention was paid to the quality of assets. Every outgoing chairman passed the buck to his successor.

“That was a time (2011-2013) when everyone rushed to give money to corporations, no matter what the credit perception was. Everyone expected a miraculous pick-up in the economy,” recalled a former banker with a nationalized bank who now works as a consultant.

Firstpost takes a look at how the NPA picture of India’s government-owned banks have evolved so far:

bad loans of 39 banks

From Rs 53,917 crore, Indian banks gross non-performing assets (GNPAs) in September 2008 (just before the 2008 global financial crisis broke out following the collapse of Lehman Brothers), the bad loans have now grown to Rs 3,41,641 crore in September 2015. In other words, the total GNPAs of banks, as a percentage of the total loans, has grown from 2.11 per cent to 5.08 percent.


BANK GNPA sep 2008 bar charts

Surprisingly, in the pre-crisis period, private banks topped the list of banks with highest NPAs (see the chart). A quick look at the top ten NPA scorers in September 2008 shows ICICI Bank at the top.

This was followed by small and medium-sized private sector banks such as Karnataka Bank, Lakshmi Vilas Bank, Kotak Mahindra and IndusInd Bank. Among the few sarkari banks that figure in the list are Central Bank, Uco Bank and Syndicate Bank.

Bank npa march 2009

By March 2009, a few months before the Congress-led UPA II assumed power, the scene began changing gradually. More state-run banks began appearing in the picture. The country’s largest lender by assets, State Bank of India (SBI) and Indian Overseas Bank found place in the list of top NPA scorers. Still private sector lenders figured prominently in the list with ICICI and DCB Bank leading the pack. To be sure, there is no direct link between the ascension of UPA-II and the increase in the NPA picture, but this is when the state-run banks began feeling the heat of NPAs.

bank npa march 2014

Things had worsened to a great extent by March 2014, incidentally, months before the Narendra Modi government assumed power at the Centre with a landslide victory over the Congress-led UPA government. The bad loan troubles of government banks began to hit hard despite the best efforts by banks to cover up possible NPA stock to restructured loan category. The list now is dominated mostly by public sector banks, with eight out of ten banks being government owned.

bank npa - sep 2015

Twenty months into the Modi government rule, it wouldn’t be an exaggeration to say that state-run banks are on the verge of a crisis due to their high NPAs, which constitute over 90 percent of the total bad loans of the industry. Many of them have reported losses on account of huge NPAs in the December quarter, surprising analysts. Investors are dumping shares of these banks while there is a sense of uncertainty prevailing on the extent of troubles in the banking sector.

Nine out of 10 most stressed banks in the sector are government banks. The RBI has given a deadline of March 2017 for all banks to clean up their balance sheets, which also require these lenders to set aside huge chunk of capital in the form of provisions. RBI governor Raghuram Rajan has given a clear message to banks to deal with the NPA problem upfront, instead of postponing it and worsening it.

But, there is also huge capital implication on these banks on account of high NPAs too. Banks need to set aside money (known as provisions) to cover their bad loans. The onus to keep government banks stay afloat lies with the government, which is the owner of these banks that control 70 per cent of the banking industry assets. Experts have opined that the government’s promised capital infusion in these banks is inadequate. Finance minister, Arun Jaitley, has to work out ways to bring in solutions in the long term. For now, all eyes are on the Union budget for a roadmap.


Details of NPA figures of public, private sector banks

The amount of top twenty NPA accounts of Public Sector Banks stands at Rs. 1.54 lakh crores.

As of June 2016, the total amount of Gross Non-Performing Assets (NPAs) for public and private sector banks is around Rs. 6 lakh crore. The NPA figures along with total debt for each of the 49 public and private sector banks were shared by the Ministry of Finance in response to a Parliament question on Friday.

The amount of top twenty Non Performing Assets (NPA) accounts of Public Sector Banks stands at Rs. 1.54 lakh crores.

The advances given by banks are called assets, which generate income via interests and instalments. If the instalment is not paid until the due date, it is called a bad loan. If it extends beyond 90 days, it is termed NPA. The ratio of NPAs to total advances given by a bank is a commonly used indicator reflecting the health of the banking system.


Indian Overseas Bank fares worst, having the highest ratio of NPA to total advances — 20.26 per cent. UCO Bank (18.66 per cent) and Bank of India (16.01 per cent) follow.

In absolute terms, State Bank of India has the highest value of Gross NPA around Rs. 93,000 crores. Punjab National Bank (Rs. 55,000 crores) and Bank of India (Rs. 44,000 crores) come next.

Basic Metal and Metal Products sector is the worst performing in terms of NPA ratio. As of June 2016, govt data show that a third of all outstanding advances (Rs. 4.33 lakh crore) given to the sector turned to NPA (Rs. 1.49 lakh crore).

Textiles sector, and Beverages (excluding Tea and Coffee) and Tobacco sector follow, both having NPA ratio at around 17 per cent.

Specific measures have been taken for sectors where the incidence of NPA is high, the government said in response to the parliament question. To improve the resolution or recovery of bank loans, IBC (Insolvency and Bankruptcy Code) has been enacted and SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act and RDDBFI (Recovery of Debts due to Banks and Financial Institutions) have been amended, the response said. Further, six new Debt Recovery Tribunals (DRTs) have been established for improving recovery.

The SARFAESI Act allows banks and other financial institutions to auction residential and commercial properties when borrowers default on their payments. This helps the banks to reduce their NPA by recovery and reconstruction. Under this Act, 64,519 properties were seized or taken possession off by the banks in 2015-16. In the current financial year, as of June, the number stands at 33,928.


Bank NPAs may hit 8.5 % by March

Banking sector gross NPA at 7.6%, highest in 12 years; Expected to rise further to 8.5% by March 2017

Gross bad loans at commercial banks could increase to 8.5 per cent of total advances by March 2017, from 7.6 per cent in March 2016, according to a baseline scenario projection by the Reserve Bank of India (RBI) in its Financial Stability Report released on Tuesday. “The macro stress test suggests that under the baseline scenario, the gross NPA may rise to 8.5 per cent by March 2017,” the RBI noted in the report. “If the macro situation deteriorates in the future, the gross NPA ratio may increase further to 9.3 per cent by March 2017.”

Asset Quality Review

The central bank has been pushing lenders to review the classification of loans given by them as part of an Asset Quality Review (AQR). The resultant sharp surge in provisions for bad debts has eroded profitability, especially at state-owned banks, in recent quarters. The gross bad loans of public sector banks increased to 9.6 per cent as of March 2016, from about 6 per cent a year earlier, RBI data showed.

There was an almost 80 per cent jump in gross bad loans in 2015-16, according to the report. Gross bad loans of Indian banks widened to 7.6 per cent from 5.1 per cent in September and from 4.6 per cent in March 2015. In 2004, gross bad loans in the Indian banking sector touched 7.8 per cent, while the ratio was 11.1 per cent in 2002. “The stress in the banking sector, which mirrors the stress in the corporate sector, has to be dealt with in order to revive credit growth,” RBI Governor Raghuram Rajan said in the report.

The rise in gross NPA is mainly because of the AQR, RBI said in the report. The AQR conducted by the banking regulator found several restructured advances, which were standard in the banks’ books, that needed to be reclassified as non-performing.

Since a large proportion of standard restructured advances slipped into the NPA category, the overall stressed assets ratio increased marginally to 11.5 per cent from 11.3 per cent in September.

RBI said subsequent to the AQR, gross NPAs rose 79.7 per cent year-on-year in March 2016.

Private sector banks

The net NPA of the banks also increased sharply to 4.6 per cent in March 2016, from 2.8 per cent in September 2015. Public sector banks’ net NPA was 6.1 per cent, while the ratio for private sector banks was 4.6 per cent.

On the business side, the report noted that credit and deposit growth remained in single digits for the previous financial year. While credit growth was 8.8 per cent, deposit growth was 8.1 per cent.

There was a stark difference in the credit and deposit growth of public sector banks as compared with their private sector counterparts. According to RBI data, for public sector banks, loans grew at 4 per cent while it was 24.6 per cent for private banks. Deposits of state-run banks grew by 5.2 per cent, while for private banks it was 17.3 per cent.

“The relative performance of bank groups reflect their respective strengths amidst on-going industry-wise balance sheet repair and also sluggish growth in private capex,” according to the report.

Silver lining

The only silver lining is the housing sector, according to the financial stability report, which said with gross NPAs of the retail housing segment at 1.3 per cent, it does not pose any significant systemic risks in the Indian context.