The gross non-performing assets (NPAs) ratio — bad loans as a percentage of total loans — of the Indian banking system could reach 12.2% by March 2019, the Reserve Bank of India (RBI) said in its financial stability report (FSR) on Tuesday. The gross NPA ratio of all banks rose from 10.2% in September 2017 to 11.6% in March 2018.
The report noted that if the macroeconomic conditions deteriorated, the gross NPA ratio could worsen. Among the bank groups, the gross NPA ratio for public sector banks (PSBs) may increase from 15.6% in March 2018 to 17.3% by March 2019 in a scenario where the stress was severe. For private banks, the ratio could to 5.3%, the central bank observed while for foreign banks’ it could increase to 4.8% by March 2019.
The net NPA ratio registered a smaller increase during between September 2017 and March 2018 due to increase in provisioning. “The gross NPA ratio in the industry sector rose from 19.4% to 22.8% during the same period whereas stressed advances ratio increased from 23.9% to 24.8%,” the RBI said.
The report pointed out that within industry, the stressed advances ratio of sub-sectors such as gems and jewellery, infrastructure, paper and paper products, cement and cement products, and engineering registered an increase in March 2018 over September 2017. According to the FSR, the asset quality of food processing and textiles sub-sectors improved during the same period. “The provision coverage ratio increased across all bank groups in March 2018 from its level in September 2017. Among the bank groups, foreign banks had the highest provision coverage ratio (88.7%) followed by private banks (51%) and public sector banks (47.1%),” it said.
The report added that under the assumed baseline macro scenario, six PSBs under the prompt corrective action (PCA) framework may have capital adequacy ratio (capital to risk weighted assets ratio or CRAR) below the minimum regulatory level of 9% by March 2019 without taking into account any further planned recapitalisation by the government.
“However, if macroeconomic conditions deteriorate, ten banks may record CRAR below 9% under severe macro-stress scenario. Under such a severe stress scenario, the system level CRAR may decline from 13.5% to 11.5% by March 2019, while under the baseline scenario, CRAR of scheduled commercial banks may decline to 12.8%,” it said.