NPAs – Sectoral Analysis…

The passage of Ordinance related to NPAs has renewed the sense of urgency to clear up the mess with Gross NPA of the banking sector crossing Rs 6 lakh crore mark. More worryingly, there is no sign yet of a trend reversal. An analysis to understand where this NPA  is coming from..   

It is important to understand the loan distribution pattern of banking sector before looking at the NPAs. Loans are classified into broad groups of Industries, Services, Retail, Agriculture and Others. Of these, Industries has the largest share of loan at over 40% whereas Services and Retail account for about 20% each. It is the Industries sector which has caused most of the NPAs whereas other segments are doing reasonably well.

As per the latest available Sept’16 figure, total NPA of the banking sector stands at about Rs 6.4 lakh crore, over 9% of its total loan book, also called advances. However, there is a huge divergence in performance of Public sector banks (PSBs) and private banks. PSBs are saddled with almost 90% of this bad debt, at Rs 5.9 lakh crore, 11.8% of their total advances. More worryingly, there is a slippage of nearly Rs 90,000 crore in last six months alone. Other than GNPA, the banks are also saddled with nearly Rs 2 lakh crore of restructured advances. These are loans facing difficulties in repayment but have better outlook and therefore, have been given more flexibility in repayment schedule by banks.

In contrast, NPAs of private sector banks stands at less than Rs 50,000 crore, just about 2.7% of their loan book. In fact, the performance of private sector banks mask the stress on PSBs when NPAs of aggregate banking sector is analysed. A point worth mentioning here is that private sector banks have a much larger share in Retail loans which face much less stress and therefore, lesser level of bad debt for these banks.

The segment wise analysis shows that Industries accounts for almost 75% of bad debts even though its share in total loans book is just over 40%. Within this, power sector faces severe stress with 9% share in loans but more than 20% share in NPAs. (All NPAs in this para includes restructured advances). This means that of every five rupees lent to the sector, at least one rupee appears unrecoverable. Similarly, Iron & Steel has nearly 5% share in loans but over 11% share in NPAs. Five sub-sectors, namely, iron & steel, textiles, infrastructure (including Power), mining and aviation, which together constitute nearly 25% of total loan book have a share of over 50% in total NPAs. Surprisingly, textiles which doesn’t seem to have any serious reason to get into so much of stress faces sectoral NPA to advances ratio of nearly 20%.

In terms of size of borrowers, the top 100 borrowers account for less than 15% of loans. However, their share is bad debt is much higher at nearly 23%. In comparison, MSMEs do much better with just about 5% of bad debts against nearly 8% share in total loans.

(Image courtesy of jesadaphorn at



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