The ratio of gross non-performing assets (NPAs)to gross advances stood at 4.1% in FY14, up 70 basis points (bps) from 3.4% in the previous fiscal. Net NPAs, on the other hand, were up 50 bps to 2.2%, RBI data showed.
The RBI said most bad loans were in the books of public sector banks, who also constitute the majority of advances in the banking system. According to RBI data, gross NPA ratio of public sector banks at the end of March 2014 stood at 4.7%, up 90 bps from the previous financial year and net NPAs were higher by 70 bps in FY14 at 2.7%. Not only were the gross and net NPA ratios of PSBs more than the industry averages, but they also accounted for 92% of the restructured standard advances, RBI said in its annual report.
Large public sector banks like State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) have all shown rise in bad loans, owing to payment defaults from corporates of various sizes, and medium and small enterprises. SBIs gross NPA ratio rose to 4.95% of its gross advances as on March 31; it came down slightly to 4.90% in the June quarter. PNBs gross NPAs as on March 31 were 5.25% and was up close to 100 bps from the same period last year; as on June 30, the banks net NPA ratio worsened to 5.48% of gross advances.
The RBI said improvement in NPAs during Q4 of 2013-14 needs to be cautiously examined in the face of the increased offload of loans to asset restructuring companies (ARCs) by banks. The banking industry sold loans worth R12,710 crore to asset reconstruction companies (ARCs) in the March quarter of FY14, a huge jump from R760 crore in the March quarter of the previous year. The credit quality of banks has deteriorated notably over the last three years. The capital adequacy ratio (CRAR) also declined from 15.0% in December 2009 to 13.0% in March 2014, RBI said.
The central bank said increase in the level of restructured standard advances since 2012-13 reflects potential hidden stress in the quality of loan assets. Percentage of standard restructured advances to gross advances was up 10 bps at 5.9%.
However, RBI sounded positive in its comparison of the Indian asset quality scenario to historical data. Compared over time and across countries, Indias NPAs are not high. Historically, the gross NPA ratio was at 12.0% in March 2001. It had declined sharply to 2.4% in June 2008 on the back of stringent prudential regulations and high growth in the economy. It added that post the 2008 financial crisis the situation has worsened since exposure to certain group firms that became excessively leveraged contributed to weakening asset quality.