Banks' NPAs jumped 50 bps to 5.1% between March and September: RBI
23 December 2015
Gross non-performing assets of banks in India rose to 5.1 per cent as of the September quarter from 4.6 per cent in March 2015 as bad loans problem worsened, the Reserve Bank said today.
Banks' net NPAs as a percentage of the total net advances increased to 2.8 per cent as of September from 2.5 per cent in March, according to the Financial Stability Report (FSR) released by RBI today.
It needed a halt to restructuring of corporate debt to bring down the percentage of restructured standard advances to gross advances to 6.2 from 6.4. However, stressed loans ratio increased to 11.3 from 11.1 per cent in the same period.
Public sector banks recorded the highest level of stressed assets at 14.1 per cent followed by private sector banks at 4.6 per cent and foreign banks at 3.4 per cent, the report shows.
As of September 2015, 34 banks with 12 per cent share in advances showed very low stressed advances ratio of less than 2 per cent, while 16 banks with 27 per cent share in advances had high stressed advances ratio of over 16 per cent.
Sectoral data as of June 2015 indicate that industry continued to record the highest stressed advances ratio of about 19.5 per cent, followed by service sector at 7 per cent.
As against this, the retail sector recorded the lowest stressed advances ratio at 2 per cent.
In terms of size, medium and large industries each had stressed advances ratio of 21 per cent, whereas, in case of micro industries, the ratio stood at over 8 per cent.
The five sub-sectors - mining, iron and steel, textiles, infrastructure and aviation - which together constituted 24.2 per cent of the total advances as of June 2015, contributed to 53 per cent of the total stressed advances.
Stressed loans in aviation sector rose 61 per cent in June 2015 from 58.9 per cent in March, while stressed advances in the infrastructure sector increased to 24 per cent from 22.9 per cent during the same period.
The report highlighted that a significant increase in the GNPA ratios of large borrowers among state-run banks from 6.1 per cent in March 2015 to 8.1 per cent in September 2015, led to an increase in the GNPA ratio of the banking system.
The sharp increase in the share of GNPA of large borrowers to the total GNPAs from 78.2 per cent in March 2015 to 87.4 per cent in September 2015 is a major concern to the lending institutions and other stakeholders.
The business of scheduled commercial banks (SCBs) slowed as reflected in further decline in both deposit and credit growth. Between March and September 2015, the gross non-performing advances ratio increased, whereas restructured standard advances ratio declined. Sectoral data as of June 2015 indicates that 'industry' continued to record the highest stressed advances ratio of about 20 per cent, followed by 'services' at 7 per cent. The capital to risk-weighted asset ratio (CRAR) of SCBs registered some deterioration during the first-half of 2015-16.
Among other financial institutions, the asset quality of both scheduled urban co-operative banks (SUCBs) as well as non-banking financial companies (NBFCs) deteriorated during the first-half of 2015-16.
The banking stability indicator shows that risks to the banking sector increased since the publication of the previous FSR, mainly on account of deteriorating asset quality, lower soundness and sluggish profitability.
While global financial sector regulatory reform agenda is being implemented steadily, there is a need for better appreciation of cost-benefit matrix of these reforms across jurisdictions given the structurally different economies with varying national priorities.
While steps taken for developing corporate debt markets in India are showing some results, the dependence on bank finance continues even as the banks, especially the PSBs face challenges on asset quality, profitability and capital. In addition to the focus on governance processes through initiatives like 'Indradhanush', the PSBs may need to review their business models, and examine strategic decisions like capital planning and dividend policy.
The insurance business model encompassing both insurers and reinsurers has specific features that differentiate it from the banking system and make it a source of stability in the financial system.
The national pension system (NPS) is showing steady growth, and the Atal Pension Yojana (APY) aims to mitigate challenges faced by people in the unorganised sector.
While India's macro-economic fundamentals are relatively stronger, domestic demand and private investment are still not picking up, underscoring the need to step up public investments. Although India's current account balance has benefitted from the fall in international crude prices and reduction in gold imports, exports have been adversely affected due to weak external demand.
RBI noted that overall India's financial system remains stable and the relatively stronger macroeconomic fundamentals lend resilience to face the still prevailing uncertainty and emerging risks in the global economy and financial markets. However, it said, policy makers and stakeholders will need to remain watchful about the potential adverse impact of developments in the global scenario particularly increased volatility in financial markets and further slowdown in global trade.
On the domestic front, risks arising from erratic climatic conditions, limited policy space, corporate performance, asset quality of financial institutions and low investment growth, among other factors, could pose challenges, RBI said.