The problem of rising stressed assets in the PSU banking space has been a cause of worry of late. Stressed assets basically constitute gross non-performing assets and restructured advances. As of December 2013, stressed asset ratio of PSU banks averaged at about 12.6% of gross advances. This means that out of every Rs 100 lent roughly on an average Rs 12.6 was either restructured or classified bad.
Of the key public sector banks, Central Bank of India leads the list of banks where stressed ratio is higher than the industry average. It is followed by UCO Bank and United Bank of India. Rising stressed assets in the banking system especially in the PSU space raises questions over their lending practices. While the increase in ratio could be partly due to slowdown concerns, one cannot rule out lapses by PSU banks when it comes to assessing the credit quality of the borrower. The United Bank saga is a case in point. In order to improve the asset quality, PSU banks will have to tighten their lending criteria. Also, the current issue of rising troubled loans is because quite a few PSUs have high exposure to sectors which are affected by slowdown like infrastructure and real estate. Hence, sectoral caps should be reviewed. If not, the gap between asset quality of PSU and private banks will widen further.