Who are the most significant contributors to the NPA for the loans issued by the banks? If you think they are the retail customers, then your assumption is wrong. The corporate and industry loans are the biggest defaulters.

Out of the total credit to the industry sector, corporate and industrial loans generate 75 percent of the total NPA whereas retail loans generate only 4 percent NPA.

In hard statistics, 4.70 lakh crore worth of NPA are there out of the gross 6.42 lakh crore belongs to corporate institutions.

It means out of 100 rupees given as a loan, 35 to 45 turned into NPA. The figures are terrifying.

The statistics reveal some interesting facts

Amongst the top Gross NPA ratio declared so far, Indian Overseas Bank and IDBI Bank show in the range of 40 to 45 percent whereas Allahabad Bank and Bank of Maharashtra closed in the range of 35 to 40 percent.

Large corporate accounts contribute to the bigger chunk of NPAs. In the two years 2015 to 2017, the gross NPA under the industry-large category of the scheduled commercial bank increased almost five times.

Banks like HDFC that predominantly focuses on retail lending shows the gross NPA in the range of 0.74 percent only whereas Yes Bank shows 3.28 percent. Yes Bank predominantly focuses on corporate customers.

Hence, a separate strategy is proposed to gear the smaller banks so that they lend primarily to retail. It will be done by swapping assets and curtailing the unprofitable branches.

Admittedly, all these steps will help in controlling the situation.

Reasons behind high NPA in corporate loans

What are several reasons behind the high ratio of corporate loans going in the category of NPA? Failure of business due to some reason, incorrect risk assumption are the reasons.

In the PSBs, the exposure of corporate loan is almost 50 percent whereas the retail exposure is 15 percent.

Several loan categories fall in the retail loans; personal loans, car loans, and home loans. Loan to the agriculture and car loan also fall into the category. The payment track record is good in these loans.

It is the reason; smaller banks have been instructed to reduce the corporate loan exposure to below 40 percent by the end of the fiscal year 2018-2019.

Also, the corporate loan exposure shouldn’t cross beyond 25 percent of the risk-weighted assets. The banks should focus more on retail lending than institutional lending.