Stressed assets – non-performing assets and restructured loans – of public sector banks (PSBs) rose 40 basis points (bps) to 14.5% in March 2016 from 14.1% in September 2015, the Reserve Bank of India (RBI) said in its financial stability report (FSR) on Tuesday.
Meanwhile, the sharp reduction in restructured standard advances ratio from 6.2% to 3.9% during the same period resulted in the overall stressed advances ratio rising marginally to 11.5% from 11.3% during the period. While PSBs continued to hold the highest level of stressed advances ratio at 14.5%, both private sector banks (PVBs) and foreign banks (FBs), recorded stressed advances ratio at 4.5%.
According to the central bank, while the business of scheduled commercial banks (SCBs) slowed significantly during 2015-16, the gross non-performing advances (GNPAs) ratio increased sharply, largely reflecting reclassification of restructured standard advances as non-performing.
It explained that while significant number of banks shifted from lower gross NPA ratios to higher gross NPA ratios during the last year, distribution of banks based on the stressed advances ratio did not change much, suggesting increasing proportion of restructured advances being classified as non-performing.
Advances to large borrowers classified as special mention account (SMA-2) declined sharply by 40.5% and restructured standard advances declined by 25% between September 2015 and March 2016 owing to reclassification.
The report indicated that risks to the banking sector has increased significantly during in the September-March period of FY16. “As per the banking stability indicator, risks to the banking sector increased significantly during the second half of 2015-16 due to deteriorating asset quality and lower profitability,” it said, adding that owing to the higher level of balance sheet impairment, banks may remain risk averse for some more time as their focus would be on strengthening balance sheet.
According to the FSR, a bank-wise distribution of return on assets (RoAs) show that 21 scheduled commercial banks (SCBs) with a share of 37% in the total assets of SCBs recorded negative RoAs during FY16. Further, seven banks with a share of 5% in the total assets recorded RoAs in the range of 0-0.25%.