The gross non-performing asset (NPA) ratio — bad loans as a percentage of total loans — for the Indian banking system could hit 4.8% by September 2015 from 4.6% in March, the RBI’s financial stability report (FSR) released on Thursday noted. However, the ratio could subsequently improve to 4.7% by March 2016, the report added, although the RBI has cautioned that if macroeconomic conditions deteriorate, the NPA ratio may increase further to around 5.9% by March 2016 in a severe stress scenario.
Public sector banks are likely to continue to register the highest NPA ratio. “Under baseline, their NPA ratio may go up to 5.7% by March 2016 which may further rise to 7.0% under a severe stress scenario,” the report said, adding that in such a case the NPA ratio of private banks could move to 4.1% by March 2016 from 2.1% as at end March 2015.
The central bank said that owing to an increase in restructured standard advances, stressed loans — NPA and restructured loans — increased to 11.1% the total advances at the end of December 2014. Five sub-sectors — mining, iron and steel, textiles, infrastructure and aviation — which together constituted 24.8% of the total bank loans had a much larger share of 51.1% in the total stressed advances.
Recently RBI deputy governor SS Mundra had pointed out that although on the whole the banking system has remained resilient, asset quality has seen sustained pressure due to continued economic slowdown.
Till April, banks were resorting to restructuring stressed loans via CDR since the RBI allowed such assets to be categorised as ‘restructured standard’, which meant lenders needed to make a provision of just 5% and not a minimum of 15% as is required for an NPA. However, that forbearance has been lifted from April 1.
