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Banks cut bad assets

Mumbai, Nov. 17: Non-performing assets (NPAs) of the domestic banking sector showed a decline during the year 2002-03 due to a combiation of upgradation, recoveries and write-offs.

According to the Trend and Progress of Banking 2002-03, released by the Reserve Bank of India (RBI) today, gross NPAs of public sector banks came down to Rs 54,086 crore in 2002-03 from 56,473 crore in the previous year. As a percentage to gross advances, this figure came down to 9.4 per cent from over 11 per cent in the previous year.

For scheduled commercial banks, gross NPAs were placed at Rs 68,714 crore, down from Rs 70,861 crore in 2002.

Apart from the impact of earlier measures to NPAs, the SARFAESI Act was another factor contributing to lower NPAs.

“The progress under this act has been significant, as evidenced by the fact that during 2002-03, reductions outpaced additions, especially for public sector banks and reflected in an overall reduction of non performing loans to 9.4 per cent of gross advances from 14 per cent in 1999-2000,” the report said.

The report said the peformance of the commercial banking system during the quarter ended June 2003 indicates a significant improvement. The improvement in net profits during this period was driven by a containment of expenses and was achieved despite a sharp rise in provisions and contingencies across bank groups.

For financial institutions, however, the picture is different. The RBI report said there was an increase in net NPAs of select FIs due to slow economic recovery and sectoral bottlenecks and that the financial performance of FIs as a group showed further deterioration over the previous year.

This, it said, can be attributed to decline in spread and non-interest income and rise in other expenses with IFCI and IIBI accumulating high NPAs and related provisioning leading to their declining profitability and erosion of capital.

“If these two institutions are excluded, all FIs, however, are seen to have registered positive operating and net profit, as was the case in the previous year,” the report said.

Net NPAs of FIs rose to Rs 14,771 crore from Rs 11,754 crore in the previous year.

“In terms of ratio of net NPA to net loans and advances, the performances of term lending institutions like IIBI, IFCI and TFCI has remained a matter of concern,” the report said.

On managing the liquidity in the system, RBI said it could use the cash reserve ratio (CRR), in either directions, taking into account inflation trends and other macroeconomic developments

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