NEW DELHI: Public sector banks are set to report a spurt in bad loans beginning next month when they shift to a new technology platform to calculate their non-performing assets (NPAs).
The platform, called the Core Banking System, automatically processes and updates transactions, helping identify NPAs on a daily basis, as against the current system where most transactions are managed manually, leaving scope for slippages.
Bankers say as a result of the mandatory migration to the new system, NPAs of some banks may rise by as much as 150%. This will force the lenders to set aside more funds to cover losses from such loans, which in turn will impact their bottomlines, they said.
Several bankers had met finance ministry officials on Monday to ask for an extension of the March 31 mandatory migration deadline. "The government has decided to extend the deadline to June 30 only for accounts up to 50 lakh, and complete the entire process by September 2011," a finance ministry official said. "We don't see a case for relaxation beyond this."
According to latest data from the Reserve Bank of India, the gross non-performing assets of state-run banks touched 68,597 crore at the end of December 2010, an increase of 27% from a year ago.
"Already there is concern over the rising NPAs," said the chairman of a public sector bank who attended Monday's meeting. "If we reflect an increase in this fiscal, it will have an impact on the banking system as a whole."
A look at the loan book of the country's largest public sector lender, the State Bank of India (SBI), gives an indication of the impact.
SBI's NPAs rose by about 1,000 crore every quarter in the last fiscal after it started the process of shifting its loan book on the new technology platform, its managing director Diwakar Gupta said. Gupta was also present in the meeting with finance ministry officials. SBI has completed the process, barring agricultural loan, which account for about 3% of its total loans.
The bank is concerned that a substantial part of agricultural loans, which are not accounted as bad loans under the manual system, may become NPAs on being shifted to the new platform.
Punjab National Bank chairman K R Kamath said the banks would require time to correct any data inconsistencies, which may arise while shifting to the new platform.
"We are shifting from a legacy system and a lot of data needs to be aligned," Kamath said. "Undoubtedly, there will be some rise in NPAs."
Indian Bank, which was one of the first banks to move to the new system, had reported a jump of 830 crore in bad loans to 1,340 crore. "Shifting to CBS will result in a jump in bad loans but it help in monitoring the system," said T A M Bhasin, chairman and managing director of Indian Bank.
The banks would require additional time to further cleanse the data, said Ramnath Pradeep, CMD of Corporation Bank.
"So far it has been done manually," he said. "We need to further fine tune the system to avoid any discrepancies."
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