RBI worried over rising bad loans

MUMBAI: The Reserve Bank has expressed concern over rising bad loans within the banking system, even as its capital adequacy ratios remain robust.
The RBI in its statutory report on 'Trends and Progress of Banking' pointed out that the gross NPA ratios of the domestic banks remained unchanged at 2.25 per cent in 2007-08 when the global financial crisis was at its peak.
But strangely, "during FY10, gross NPA ratio increased to 2.39 per cent. After netting out provisions, there was a rise in the net NPA ratio from 1.05 per cent at end March 2009 to 1.12 per cent at end March 2010," the report said.
However, it underlined the fact that the asset quality of domestic banks has generally seen a steady improvement, as evident from a declining level of gross and net NPA ratio since 1999.
"The gross NPA ratio was 14.6 per cent in March 1999, which had declined steadily to 2.25 per cent by March 2008. And during the crisis year 2008-09, the gross NPA ratio remained unchanged," the RBI report noted.
The report also said that the rise in NPA ratios was also reflected in the increased provisioning by banks, which grew by a massive 22.4 per cent during the reporting period.
In October 2009, RBI had asked banks to up their provisions for NPAs to 70 per cent by September 2010, as between 2009 and 2010, the coverage ratio of provisions to NPAs declined from 52.1 to 51.5 per cent.
The report further notes that even against the backdrop of rising NPAs and rising provisioning, there was a rise in the capital to risk weighted assets ratio (CRAR)of our banks, which stood at a healthy 14.5 per cent by the end of March 2010.