5 Indian Banks With The Lowest NPAs – Free PDF Download

What’s happening?

• Growing NPAs (non performing assets) have become an unending nightmare for the Indian banking sector due to the pandemic.
• While some banks have implemented measures to mitigate this, others may be at the beginning of a new NPA cycle.
• Although there is no ‘acceptable limit’ for NPAs, it’s considered manageable if the bank’s NPAs are under 3%.
• However, there is not a single public sector bank in the top five banks with the lowest NPAs.

Hdfc bank

• HDFC Bank is India’s largest private sector bank by assets and by market capitalisation.
• The bank, despite having less than 10% share of the banking sector, is one of the most respected banks in the country.
• When it comes to servicing retail customers, the bank relies on the model of wide franchise and low-cost deposit base.
• This ensures good pricing power and sustainability of above average NIMs (net interest margins).
• It thus comes as no surprise to us that HDFC Bank holds the distinction of reporting more than 20% YoY profit growth every quarter for over 40 quarters.
• All this while, its net NPAs have never crossed 5% of loans!
• Even in the year 2020, where the entire banking industry was hit due to the pandemic, HDFC Bank reached out to large corporates for their funding requirements, which it could do because of its strong balance sheet.
• In its latest quarterly results, the bank’s net NPA ratio stood at 0.48%.

Indusind bank

• Another private sector bank, which has come a long way, and has a strong resemblance to HDFC Bank in the past few years is IndusInd Bank.
• The bank was incorporated around the same as HDFC Bank, in 1994, by Srichand Hinduja, one of the promoters of the Hinduja group.
• Despite above average loan growth, even in the most difficult of times, IndusInd Bank has not compromised on its asset quality.
• The bank’s net NPA ratio, like in the case of HDFC Bank, has consistently stayed below 0.5% over the past five years.
• The bank also has a leadership position in certain retail asset classes with a pan India franchise which has strengthened its ability to manage the asset quality in those segments.

Kotak bank

• The bank is the third largest Indian private sector bank by market capitalisation.
• It offers products and financial services for corporate and retail customers in the areas of personal finance, investment banking, life insurance, and wealth management.
• Over the last couple of years, Kotak Mahindra Bank has demonstrated a highly consistent and healthy historical track record.
• The bank has sustained net NPAs below 1.5% of its loan book all these years.
• Its institutional memory of tiding over one credit crisis after the other for nearly 25 years has also served it well.
• In its latest quarterly results, the bank’s asset quality weakened as gross NPAs stood at 3.56%.
• However, net NPAs still came in below 1.5% at 1.28%.

Federal bank

• The bank is headquartered in Kerala and handles more than 15% of India’s total inward remittances.
• It has a customer base of over 10 m, including 1.5 m NRI customers and a large network of remittance partners across the world.
• The bank constantly improves its collection and recovery architecture to improve its asset quality.
• It also uses various analytics tools to predict the propensity to default and collection score of the borrowers.
• During the financial year 2021, while there was large increase in NPAs in almost all banks, Federal Bank exhibited a decline in NPAs due to diligent selection of borrowers.
• In the latest quarterly results, the bank’s gross NPAs rose to 3.5% while its net NPAs increased marginally to 1.23% largely due to the Covid-19 related challenges faced by borrowers.

ICICI bank

• ICICI Bank is one of the three systemically important banks in India with a 7% market share in the banking sector.
• Along with its subsidiaries, the bank has a wide presence across various financial services verticals such as life insurance, general insurance, merchant banking, asset management, etc, with a leadership position in many of these businesses.
• The bank’s net NPAs have stayed around 2% in the last decade with an exception in the years 2017 and 2018 where it saw high additions to NPAs in its corporate and small and medium
• enterprises loan portfolio. With the onset of Covid-19 during 2021, the bank did see an impact on asset quality across segments, resulting in an uptick in the overall fresh NPAs.
• However, despite a rise in slippages, the net NPAs remained lower at 1.14% as on 31 March 2021 against 1.54% as on 31 March 2020.

Why NPA is an issue?

• A mounting level of NPAs in the banking sector can severely affect the economy in many ways.
• If NPAs are not properly managed, it can cause financial and economic degradation which in turn can signal an adverse investment climate.

Bad bank

• With unpaid corporate loans at an all-time high in India, the government has set up a bad bank to resolve such loans, paving the way for a major clean-up of the banking system.
• The new institution will take over bad loans from commercial banks amounting to ₹2 lakh crore, a quarter of the total stressed loans in the country.
• How this bad bank pans out remains to be seen.

Q) Arrange the following initiatives taken by govt to tackle the NPA in their ascending order of chronology?

1. Corporate debt restructuring
2. Compromise settlement
3. Debt recovery tribunal
4. Credit information bureau
5. SARFAESI act

1. 3-4-1-2-5
2. 1-2-5-3-4
3. 3-4-2-5-1
4. 4-3-2-5-1

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