Banks’ bad loans may rise again, warns RBI

MUMBAI: The Reserve Bank of India (RBI) warned on Friday that bad debts may rise again in the next nine months, mainly due to a weak macro situation, higher slippages and low credit growth. RBI’s financial stability report (FSR), published biannually in June and December, also pointed to suspected cases of ratings shopping by mid-rated entities.
It added that large corporates that are flush with cash and don’t need loans now are one of the reasons for the current muted rate of growth of credit off-take in the banking system.The report said banks’ credit growth remained subdued at 8.7 per cent during the year ended September 2019, though the number for private banks was 16.5 per cent.

Indian banks’ capital adequacy ratio improved significantly to 15.1 per cent in September 2019 after recapitalisation of public sector banks (PSBs) by the government, the RBI warned. The provision coverage ratio (PCR) also rose to 61.5 per cent from 60.5 per cent a year earlier, implying increased resilience of the banking sector.

“Macrostress tests for credit risk show that under the baseline scenario, SCBs’ gross non-performing asset (GNPA) ratio may increase from 9.3 per cent in September 2019 to 9.9 per cent by September 2020, primarily due to change in macroeconomic scenario, marginal increase in slippages and the denominator effect of declining credit growth," RBI’s FSR noted.

It pointed out that state-run banks’ GNPA ratio may increase to 13.2 per cent by September 2020 from 12.7 per cent in September 2019, whereas for private banks it may climb to 4.2 per cent from 3.9 per cent, under the stress scenario. On the other hand, foreign banks’ GNPA ratio may increase to 3.1 per cent from 2.9 per cent. The central bank said that Indian banks’ net non-performing assets (NNPA) ratio declined in September 2019 to 3.7 per cent due to increased provisioning.
The report also pointed out that bank-wise distribution of asset quality showed that while 24 banks had GNPA ratios of under 5 per cent, four banks had GNPA ratios higher than 20% in September 2019. The asset quality of agriculture and services sectors, as measured by their GNPA ratios, deteriorated to 10.1% from around 8% a year earlier.
However, for the industry sector, slippages fell sharply to 3.8 per cent from around 5 per cent. The report showed that the share of large borrowers (between Rs 100 crore and Rs 5,000 crore) in banks’ total loan portfolios fell to 51.8 per cent from 53 per cent while their share in GNPAs improved to 79.3 per cent from 82.2 per cent earlier. It noted that the top 100 large borrowers accounted for 16.4 per cent of banks’ gross advances and 16.3 per cent of GNPAs.