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  1. RBI sees big problem with big borrowers

RBI sees big problem with big borrowers

The Reserve Bank of India (RBI) on Wednesday expressed concerns on the debt servicing capability of large borrowers which, in turn, was affecting the health of the banking sector. Customers with aggregate loans of R5 crore and above are classified as large borrowers.

By: | Updated: December 24, 2015 2:24 AM
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In the same stress scenario, the RBI said, the impact on profit before tax could be 112% for default of the top three individual borrowers. (Express Photo)

The Reserve Bank of India (RBI) on Wednesday expressed concerns on the debt servicing capability of large borrowers which, in turn, was affecting the health of the banking sector. Customers with aggregate loans of R5 crore and above are classified as large borrowers.

The central bank drew attention to the growing share of toxic assets of bigger borrowers in the financial stability report; there has been a sharp increase in the share of gross non-performing assets (NPAs) of large borrowers to the total gross NPAs to 87.4% in September from 78.2% in March. This, the central bank observed, “is a major concern to the lending institutions and other stakeholders”.

RBI governor Raghuram Rajan said in his foreword to the report that corporate sector vulnerabilities and the impact of their weak balance sheets on the financial system need closer monitoring.

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In an attempt to determine the health of the corporate sector, the RBI analysed 2,711 listed non-government and non-financial listed companies from FY11 to first half of FY16. Of the companies studied, 19.4% have either negative net worth or a debt-to-equity ratio of more than or equal to two and 15.3% have a debt-to-equity ratio of greater than or equal to three.

The central bank noted that a significant increase in the gross NPA ratios of large borrowers among public sector banks, from 6.1% in March 2015 to 8.1% in September 2015, led to an increase in the gross NPA ratio of the banking system.

The standard assets — loans that are repaid at regular intervals — among large borrowers declined to 84.5% of total gross advances in September 2015 from 86.2% in March 2015.

“Credit to top 100 large borrowers (in terms of funded amount outstanding) constituted 27.6% of the credit to all large borrowers and 17.8% of the credit of all scheduled commercial banks,” the report said.

Stress tests on the credit concentration risks of banks, considering the individual borrowers, show that the impact was significant for seven banks, comprising about 6.1% of the assets, which may fail to maintain the 9% capital adequacy ratio in at least one of the scenarios.

It added that capital losses under the scenarios of default of the top borrower could be around 5%, while default of the top two borrowers could result in capital losses of 9%. As much as 13% of losses could occur in case the three top individual borrowers default.

In the same stress scenario, the RBI said, the impact on profit before tax could be 112% for default of the top three individual borrowers. The central bank further conducted stress tests to determine the impact on banks should group borrowers default. “Stress tests using 10 different scenarios on the information of group borrowers on the credit concentration risk reveal that the impact on the capital could be severe if more group borrowers default. The losses could be around 6% and 10% if one and two group borrowers default, respectively,” it said.

 

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Tags: RBI
  1. Hemen Parekh
    Dec 24, 2015 at 6:45 am
    How to conquer Corruption ? There is only one sure - and superfast - way to get rid of corruption By introducing : * NEGATIVE MOTIVATION Putting behind bars ( - and right away ; not after 6 years ) , every corrupt fellow and immediately confiscating his ill-gotten wealth * POSITIVE MOTIVATION By abolishing Personal Income Tax and introducing Amnesty Scheme , incentivize # converting of black money into white # acceptance of all payments thru official channels As far as providing " Negative Motivation " is concerned , I had sent following suggestion to our Hon Prime Minister / Finance Minister / other Ministers / Secretaries etc , on 4th Nov 2015 : # INTERNET OF THINGS ( IoT ) As each currency note of Rs 500 / 1000 , is getting printed , embed it with microscopic RFID chips ( with this , current cost of a RFID chip will fall from 50 paise to 5 paise ) Besides communicating with each other , these chips will also transmit their existence location , through internet , to cloud-based servers of Income Tax Department This will form a " NETWORK OF CURRENCY NOTES ( NoC ) " You may like to call this Internet of Currency ( IoC ) , a sub-set of IoT ! # IP ADDRESS SYSTEM ( IP V 6.0 ) Each Rs 500 / 1000 currency note must be igned ( at the time of printing ) , its own unique Internet Address , using IP V 6.0 This IP address should be linked with the unique Serial Number printed on each note. Since IP V 6.0 , will be capable of igning " 2 * 10 to the power of 128 ", no of IP addresses , there is no danger of running out of addresses , even if we decide to extend this idea to Rs 100 currency notes ! Here are the most important BYE - PRODUCTs : * No more possibility of fake / forged / counterfeit , currency notes * No thief would ever want to steal such currency notes which continuously announce their location * No one would want to make any " Cash Deal " . All payments will become official only ! * Plastic currency notes will last 10 times longer ! This reform will enable the Central Government / Income Tax Department , to : * Continuously trace the movement of each of these higher denomination currency notes * Instantly locate any place ( using Google Map based GPS ) , where there is an aculation of more than Rs 1 Crore worth of currency notes Such aculation will be made to appear as a TAG CLOUD on the web site of IT Dept, like thousands of balloons floating on a map of India , capable of being drilled down to within 1 Sq Meter ! Of course , visible only to IT officers ; not to general public ! On each balloon , will appear a number announcing , " Amount of Cash here - Rs " ! This will vastly simplify the task of Anti Corruption Dept / Enforcement Dept etc Of course , RBI will need to allow 6 month's time to the owners of current paper currency notes of Rs 500 / 1000 , to get these exchanged with new plastic notes before withdrawal of the old notes from circulation Implementation of this suggestion , does NOT require ping of any BILL in Lok Sabha or being held to ransom in Rajya Sabha ! And it can be implemented in India , within ONE YEAR But if Chinese President Xi Jinping comes to know about the practicality of this suggestion , he might implement it in 6 months ! How come ? Simple ! Xi Jinping has the political will ! And no historical baggage ! ------------------------------------------------------------------------------------------------------- hemen parekh 24 Dec 2015 ( Also read blog " Create Wealth to Create Jobs " at , > Blogs )
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