Gross non-performing assets (GNPAs) of banking system is likely to drop to 4 per cent by March 2016 with expected improvement in macroeconomic indicators going forward, the Reserve Bank said today.
“The macro stress tests for credit risk suggest that under the baseline scenario, which assumes improvement in the overall macroeconomic scenario during the next financial year, the GNPA ratio of all SCBs may decline to 4 per cent by March 2016 from 4.5 per cent as at end September 2014,” the Reserve Bank said in its Financial Stability Report (FSR) here.
The report, however, warned that if macroeconomic conditions deteriorate, the GNPA ratio of scheduled commercial banks (SCBs) may increase further and under a severe stress scenario it could rise to around 6.3 per cent by March 2016.
“Under such a severe stress scenario, the system level CRAR (capital to risk weighted asset ratio) of banks could decline to 9.8 per cent by March 2016 from 12.8 per cent in September 2014.”
The net non-performing advances (NNPAs), as a percentage of total net advances, increased to 2.5 per cent in September 2014 from 2.2 per cent in March 2014.
Stressed advances, including GNPAs and restructured standard advances, increased to 10.7 per cent of the total advances from 10 per cent between March and September 2014.
PSBs (public sector banks) continued to record the highest level of stressed advances at 12.9 per cent of their total advances in September 2014, followed by their private peers at 4.4 per cent.
The asset quality of PSBs is expected to improve, but they will continue to carry the highest GNPA ratio among the bank groups, the report said.
“Under a severe stress scenario, PSBs may record the lowest CRAR of around 9.2 per cent by March 2016 as against 11.3 per cent in September 2014, close to the minimum regulatory capital requirement of 9 per cent.”
The stress test revealed that among the seven select sectors, engineering is expected to register the highest GNPA ratio at 12 per cent by March 2016, followed by the cement segment at 10.6 per cent, it added.
The report said due to secular deterioration in their asset quality, the banks’ expected loss continues to rise, but might decline in the second half of 2015-16 if the assumed improvements in macroeconomic conditions materialise.
As of September 2014, the level of provisions of PSBs, private banks and foreign ones as a proportion of their respective total advances were at 3.2 per cent, 1.9 per cent and 3.9 per cent, respectively.
Among the bank groups, PSBs had the highest expected loss at 3.2 per cent of their total advances as of September 2014.
“Though PSBs may meet expected losses under baseline scenarios, they are likely to fall short in terms of having sufficient provisions to meet expected losses under adverse macroeconomic risk scenarios.”
The report said in 2013-14, the growth of India’s banking sector moderated. The banking stability indicator suggested that overall risks to the banking sector remained unchanged during the first half of 2014-15.
In individual dimensions, though the liquidity position improved in the system, concerns remain on account of deterioration in asset quality. The profitability dimension of the indicator showed an improvement, but it remained sluggish, the report said.
The RBI said the credit growth of SCBs recorded a low growth of 10 per cent as of September 2014 with public banks under-performing the rest with an expansion of 7.9 per cent.
Growth in deposits also declined to 12.9 per cent as of September 2014 from 13.7 per cent as of March 2014.