Sluggish economy may push banks' NPAs to 6.9% by fiscal-end: Finmin

The prevailing sluggishness in the economy is likely to cause an increase in the gross non-performing assets by the end of the current financial year, ie, 31 March 2017, according o the finance ministry's annual report.

This rise in gross non-performing assets (GNPAs) of banks could result in a "severe stress scenario," says the report.

Gross NPAs of scheduled commercial banks, which were 5.14 per cent at the end of September 2015, may rise to 5.4 per cent by September 2016, it said quoting a RBI report.

"If the macro economic conditions deteriorate, the GNPA ratio may increase further, and could rise to around 6.9 per cent by March 2017 under a severe stress scenario," said the finance ministry's 2015-16 annual report.

The report cites sluggishness in domestic growth during the recent past, slowdown in recovery in the global economy and continuing uncertainty in the global markets and consequent decline in exports of various products like textile, engineering goods, leather, gems as the main reasons for increase in banks' NPAs.

A standstill in clearance of new projects in the mining, power and steel sectors and delays in infrastructural bottlenecks, which were aggressively funded by the banks in the past have adversely impacted banks' profitability, the report pointed out.

The capital to risk asset ratio (CRAR), an indicator of bank's capital adequacy, could decline to 10.4 per cent by March 2017 from 12.7 per cent as of September 2015, it added.