Introduction

India’s banking sector has witnessed major upheavals in recent years, with the Yes Bank crisis of 2020 serving as a stark reminder of the vulnerabilities in the financial system. Non-Performing Assets (NPAs) have been a persistent problem for Indian banks, eroding investor confidence and raising concerns about financial stability. While Yes Bank’s near-collapse was a wake-up call, several other banks are now facing dangerously high levels of NPAs, putting them at risk of a similar crisis.

In this article, we will analyze three Indian banks with alarmingly high NPAs, their financial health, and the potential risks they pose to depositors and the banking system as a whole.

What Are NPAs, and Why Are They Dangerous?

A Non-Performing Asset (NPA) is a loan or advance for which the principal or interest payment has been overdue for 90 days or more. High NPA levels indicate that a significant portion of a bank's assets is at risk of default, leading to financial instability.

A surge in NPAs affects banks in multiple ways:

• Reduced profitability: Banks earn money by lending, but if borrowers default, the bank loses potential income.
• Capital erosion: NPAs force banks to set aside provisions, reducing available capital for fresh lending.
• Investor panic: A high NPA ratio can lead to stock price crashes and loss of confidence among investors.
• Regulatory scrutiny: The Reserve Bank of India (RBI) may impose restrictions on banks with high NPAs, limiting their operations.

The Yes Bank crisis in 2020 was largely due to excessive bad loans, leading to an emergency rescue plan by the RBI and the State Bank of India (SBI). With similar red flags emerging in other banks, could we see another major banking collapse in India?

1. Bank of Maharashtra

Bank of Maharashtra has consistently struggled with high NPAs over the past few years. While the bank has made efforts to recover bad loans, its gross NPA ratio remains a concern.

Key Financial Indicators:

• Gross NPA Ratio: ~5-6% (as of recent reports)
• Net NPA Ratio: ~1-2%
• Provision Coverage Ratio (PCR): ~90%

The bank has been focusing on aggressive recovery efforts and improving asset quality, but its exposure to stressed sectors like real estate and infrastructure raises red flags. Any economic downturn could push more loans into the default category, worsening its financial health.

2. Punjab & Sind Bank

Punjab & Sind Bank is another institution with high NPA levels. Despite government support, the bank has struggled to maintain asset quality.

Key Financial Indicators:

• Gross NPA Ratio: ~7-8%
• Net NPA Ratio: ~1.5-2.5%
• Provision Coverage Ratio (PCR): ~80-85%

The bank’s high exposure to corporate loans, many of which have turned bad, has put significant pressure on its balance sheet. While capital infusion from the government has helped, the bank remains at risk of further deterioration if recovery measures fail.

3. Central Bank of India

Central Bank of India has one of the highest NPA levels among public sector banks. The bank has been under RBI’s Prompt Corrective Action (PCA) framework, which imposes restrictions on lending and expansion due to weak financials.

Key Financial Indicators:

• Gross NPA Ratio: ~8-9%
• Net NPA Ratio: ~2-3%
• Provision Coverage Ratio (PCR): ~85-90%

Despite efforts to clean up its books, the bank continues to struggle with legacy bad loans and poor asset quality. If it fails to reduce NPAs further, it may require another round of capital support from the government.

Will There Be Another Yes Bank-Like Collapse?

The Indian banking system has improved its resilience since the Yes Bank crisis, with stricter regulations and better capital buffers. However, banks with high NPAs remain a risk, especially in a volatile economic environment.

Key Risks to Watch:

• Slow economic growth: A sluggish economy can lead to more loan defaults, pushing NPA levels higher.
• Corporate loan stress: Many Indian banks have large exposure to struggling industries like real estate and power.
• Weak governance: Poor management decisions and inadequate risk assessment can further deteriorate asset quality.

While the RBI has been proactive in managing banking crises, depositors and investors should remain cautious about banks with weak financials.

Conclusion

The Yes Bank crisis of 2020 was a reminder of how quickly a bank’s financial health can deteriorate due to bad loans. While India’s banking sector has strengthened its risk management since then, some banks still face dangerously high NPA levels.

Bank of Maharashtra, Punjab & Sind Bank, and Central Bank of India are among the most vulnerable due to their significant exposure to bad loans. While government and regulatory interventions may prevent a full-blown collapse, these banks remain high-risk for investors and depositors alike.

If you have deposits in these banks, it’s wise to monitor their financial health and diversify your savings to minimize risk.

Disclaimer

This article is for informational purposes only and should not be considered financial advice. The analysis is based on publicly available data, which may change over time. Readers should conduct their own research or consult a financial professional before making any banking or investment decisions.