Bad debts of the commercial banks and Development Financial Institutions (DFIs) eased down by one per cent Quarter-on-Quarter (QoQ) as the economic observers see the banks reaping fruits of 200 basis points cut in the discount rate by the central bank.
The State Bank reported Tuesday that during second quarter of the current fiscal year, October-December FY2011-12, Non-Performing Loans (NPLs) of the banks and DFIs reduced to Rs623.193 billion. The central bank had calculated these bad debts at Rs629.555 billion during the previous quarter, July-September FY12, as of September 30, 2011.
“After a consistently rising trend, NPLs of the banking sector have gone down by 1 per cent,” said Khurram Schehzad, Head of InvestCap Research. “I think 200 basis points cut was the factor for improved repayments,” viewed the senior analyst. During the said quarter, the central bank said, the banks’ net NPLs to their net credits shrank to 6.14 per cent from 6.53 per cent of the last quarter.
During the review period, DFIs saw their NPLs decreasing to Rs16.048 billion against Rs16.336 billion of the previous quarter, whereas, the bad debts of the banks declined to Rs607.145 billion from Rs613.219 billion. The local private and foreign banks, however, were an exception, whose gross NPLs, respectively, grew by 0.3 per cent and 4.8 per cent to Rs378.369 billion and Rs7.574 billion against the previous quarter’s Rs377.334 billion and Rs7.230 billion.
As the analysts see improvement in the repayments of bank loans due to 200bps discount rate cut, the banks’ and DFI’s cash recovery against their NPLs shows a positive trend and ballooned to Rs20.252 billion against Rs13.779 billion of the previous quarter.
The banks recovered Rs19.228 billion against Rs13.657 billion, the commercial banks Rs15.906 billion against Rs12.736 billion, the public sector banks Rs3.677 billion against Rs2.134 billion, the local private banks Rs12.095 billion against Rs10.476 billion, the foreign banks Rs126 million against Rs134 million and the specialised banks recovered Rs3.322 billion against Rs921 million during the quarter in review.
DFIs were also able to recover more as their recovery stood at Rs1.024 billion compared to the previous quarter’s Rs122 million. The bankers, however, are still uncomfortable with the percentage of banks’ bad debts saying the net NPLs of the banks should not swell beyond five per cent. “This is not good. They should keep NPLs below five per cent. It should be between three to four per cent of their net loans,” said a former central banker. The bankers believe that the six plus per cent growth in the bad debts was not a good omen for the economy. The central banker also said the banks should do more provisioning against their NPLs. There are some analysts who believe the present interest rate regime, 12 per cent, in the country as higher, saying a double-digit inflation was rendering the borrower unable to repay the bank loans.
