The Reserve Bank of India (RBI) has cautioned that going ahead management of non-performing assets (NPAs) and liquidity will become critical for banks
In its Report on Trend & Progress of Banking in India 2009-10 released on Monday, RBI has said NPAs remains an area of concern particularly due to the likelihood of deterioration in the quality of restructured advances.
?Going forward liquidity management will become critical for banks as monetary policy stance responds to the macroeconomic developments,?? said RBI. Apart from the increase in NPA ratio, there was also deterioration in the distribution of NPAs of commercial bank between 2009 and 2010. This was evident from an increase in the percentage of loss making and doubtful assets of SCBs, which represented the lower end of the NPA spectrum .
The shift in the distribution of NPAs in favour of doubtful and loss making assets was more prominent in the case of foreign and new private sector banks as compared to public sector banks. Another concern was the decline in the growth of profits of SCBs. At the aggregate level, the growth in net profits, which was on a steady rise during the four years up to 2007-08, posted a decline in 2008-09, which was repeated in 2009-10.
Also Return on Assets (RoA) of SCBs declined from 1.13 % in 2008-09 to 1.05 % in 2009-10 . Further, there was a decline in all other indicators too at the aggregate level, such as Return on Equity(RoE) , net interest margin and spread (defined as the difference between return on and cost of funds) in 2009-10. The other emerging concern according to RBI was with respect to asset quality of banks. The gross Non-Performing Assets (NPAs) ratio showed an increase from 2.25 % in 2008-09 to 2.39 % in 2009-10. Moreover, there was an increase in the proportion of doubtful and loss assets in 2009-10. The increase in gross NPA ratio coupled with a decline in the (outstanding) provisions to gross NPA ratio in 2009-10 at the aggregate level, underlined the need for further strengthening of provisions by banks.
However, even against the backdrop of an increase in NPA ratio, there was a rise in the Capital to Risk Weighted Assets Ratio (CRAR) of SCBs, which stood at 14.5 % at end-March 2010, far above the stipulated minimum ratio of 9 % under the Basel II framework indicating the robust capital adequacy of banks in India. During the crisis year 2008-09, the gross NPA ratio remained unchanged for Indian banks. However, during 2009-10, the gross NPA ratio showed an increase to 2.39 %. After netting out provisions, there was a rise in the net NPA ratio of SCBs from 1.05 %at end-March 2009 to 1.12 %at end-March 2010. Among the various channels, the amount of NPAs recovered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 formed over half of the total amount of NPAs recovered in 2009-10. The SARFAESI Act has, thus, been the most important means of recovery of NPAs. However, there has been a steady fall in the amount of NPAs recovered under SARFAESI Act as per cent of the total amount of NPAs involved under this channel in recent years, a trend which could also be seen between 2008-09 and 2009-10.
