Bad loans to hit banks' Q2 nos

MUMBAI A fully-automated system of bad loan calculation may reflect a spike in non-performing assets (NPAs) of banks and weigh on profitability in the second quarter, industry experts said. The finance ministry has asked all state-run banks to fully computerise calculation of stressed loans by September 2011.

Until now, lenders calculated bad loans manually. This may result in higher bad loans and force the lenders, already pressured by poor credit demand and rising yields on treasury portfolio, to set aside a greater portion of profits as provisions. Banking analysts said, in the second quarter, banks will either show higher slippages when an account moves from standard category to sub-standard category or report reversal of interest income due to automation.

Banks, such as the State Bank of India and Bank of Baroda, have already incorporated this system for all their accounts as on June 2011. Other banks, including Bank of India and Union Bank, have adopted it only for those accounts where the customer has borrowed above Rs 5 lakh, while Central Bank of India had not started this process by the end of the first quarter. "All efforts are being made by the bank to move towards a fully-automated system of arriving at NPA numbers on automated basis.

We have set up a full-fledged team for the same," said Central Bank of India executive director RV Iyer. Among others, Canara Bank has shifted accounts of more than Rs 2 lakh and Punjab National Bank has shifted accounts above Rs 10 lakh to the automated system.

"By the end of second quarter, we will be calculating bad loans on a fully-automated basis without any human intervention. To negate the impact of possible increase in NPAs, we are focusing aggressively on recovery of bad loans, especially smaller ones, by holding recovery camps which have yielded good results," said Punjab National Bank chairman and managing director KR Kamath.

In the first quarter, several lenders had to reverse interest income on adopting automated system of loan calculation. This means that in the past, banks had booked income which they had not actually received and the same was reversed.

For instance, Canara Bank reversed Rs 210 crore of interest income, while Bank of India reversed Rs 175 crore in the quarter ended June 2011. Both banks had computerised only a part of their accounts in the first quarter and thus the pain would be felt in the second quarter as well when all accounts are computerised.

Source: Economic Times