The gross non-performing assets (NPAs) ratio — bad loans as a percentage of total loans– of the Indian banking system could reach 5.4% by September 2016, the Reserve Bank of India’s (RBI) financial stability report (FSR) said on Thursday. The gross NPA ratio stood at 5.1% in September 2015.
According to the report, the bad loan ratio could subsequently improve to 5.2% by March 2017. Meanwhile, RBI governor Raghuram Rajan had recently said that the central bank wants banks to clean up their balance sheets by March 2017. “This is an ongoing process and my hope is as the banks recognise more of what needs to recognised and they deal with the stressed assets,” he had said. RBI explained that while the fresh policy measures with respect to some of the stressed sectors are expected to help ease the pressure to some extent, the results may take time to manifest themselves fully.
However, it has cautioned that if the the macroeconomic conditions deteriorate, the gross NPA ratio may increase further, and it could rise to around 6.9% by March 2017 under a severe stress scenario.
The report added added that among the bank-groups, public sector banks (PSBs) might continue to register the highest NPA ratio. “Under the baseline scenario, their GNPA ratio may go up to 6.3% by September 2016 from 6.2% as of September 2015 and may improve thereafter to 5.8% in March 2017,” the report said, adding that under a severe stress scenario, it may increase to 8.0% by March 2017.
The central bank said that the stressed loans – NPA and restructured loans – increased to 11.3% the total advances from 11.1% in March. It added that five sub-sectors – mining, iron & steel, textiles, infrastructure and aviation – which together constituted 24.2% of the total bank loans had a much larger share of 53% in the total stressed advances.
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 banks 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.
Owing to this, the restructured standard loans as a percentage of total loans have fallen 6.2% in September from 11.1% in March 2015.