NPA Rise in Retail Segment Haunts Domestic Banking Industry

The issue of non-performing assets (NPAs) in the fast expanding retail segment has started haunting the the domestic banking industry. The recent phenomena like high real estate prices, the rising interest rates and falling Sensex where a great deal of funds out of personal loans have been invested will impact the sticky assets in the retail segments, said a chief of public sector bank.. For a quality asset player like HDFC Bank though ratio of gross non-performing assets (NPAs) to total customer assets was 1.17 % in 2005-06 as against 1.47% as of March 31 2005, there has been an increase in NPAs in absolute terms during the year. Increases in NPAs during the year were primarily related to the deliquencies in various loan products, said the bank's annual report for 2005-06. However, these deliquencies and NPAs were within the expected levels for each of the retail assets products given the seasoning of the retail portfolio. The net non-performing assets (gross non-performing less specific loan loss provisions , interest in suspense and ECGC claims received) were 0.44% of the net advances and 0.36 % of customer assets as of March 31 2006 as against 0,24 % and 0.20 %, respectively as of March 31, 2005 reflecting the higher proportion of retail loans in the bank's loan book and changing mix of retail loan portfolio. Also according Prakash P Mallya, chairman & managing director, Vijaya Bank the frauds have taken place mainly in the housing loan segment. Thoogh it has not reached alarming proportions but the level of non performing assets (NPAs) in the housing loan space was going up year after year. "That is the reason why RBI also in its last credit policy have asked us to increase the risk weight to assets. That is also the reason the rates (in housing loan) have also gone up,'' he said. The banks normally ask their legal departments to give legal opinion on a particular property, on which they are going to give housing loan. "We advance money based on their opinion.