According to a data released by RBI, corporate loans contribute to a major chunk of bad loans in public sector banks (PSBs). On the basis of an analysis over released data, more than 73 percent of the bad loans comprised of corporate and industry loans only. This unnervingly high percentage came even as PSBs lent only 37 percent of their available credit to the industrial sector.
As per the data, 13.21 percent of the gross Non-performing assets (NPAs) comprised of loans to services and 8.89 percent to agriculture. Further, 22.83 percent of total available credit was directed towards retail loans, which, although occupying a good chunk of credit, amounted to only 3.71 percent of gross NPAs. Personal loans, car loans and home loans forming a large section of retail loans have performed better in terms of timely repayments, and have demonstrated far better performance compared to other loan segments.
Some bank experts say that one of the major reasons behind such huge number of NPAs is poor risk assessment during the approval of corporate loans. As per the exact numbers from the RBI data, the price of total gross NPAs for PSU Banks is Rs. 6.41 lakh crore, out of which Rs. 4.70 lakh crore are from industrial loans, while the retail sector comprised of bad loans worth Rs. 23,795 only.
In order to bring down corporate NPAs, the Finance Ministry directed PSBs to slash their loan exposure (corporate loans) mark to 25 percent of risk-weighted assets in the medium term. PSBs have further been asked to focus on retail lending to avert potential risks that lead to NPAs. Smaller PSBs have been directed to pull the mark below 40 percent by March 2019 in the buildup to limiting corporate loan exposures to 25% of risk-weighted assets over the medium term. Most PSBs currently sport a percentage of close to 50%, which only increases risks of stocking up NPAs.