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Worsening banks' asset quality cause of concern for RBI

12 Jan 2012 Evaluate

The issue of worsening banks' asset quality has emerged as a serious cause of concern for the Reserve Bank of India (RBI). According to its recent financial stability report, bank’s non-performing assets (NPA) have risen at the rate of 30.5 percent as at end September 2011 year on year, which is higher than the credit growth of 19.2 percent. The priority sector like retail, real estate and infrastructure remained the major culprits which contributed heavily in the rising NPA trend as the gross NPA ratio rose to 2.8 percent from 2.3 percent between March-September 2011.

According to the latest RBI release on sectoral deployment of credit, banks' priority sector lending has risen slightly to Rs 12,53,947 crore as on November 18, 2011, against Rs 12,39,386 crore as at March-end 2011.

The annual credit growth rate stayed within the RBI target of 17 percent for the year as banks lend around Rs 1 lakh crore during the last fortnight of calendar year 2011. During the quarter ended December 30, credit off-take was around Rs 2.7 lakh crore while on a year on year basis, loans grew by 16.1 percent, well below the RBI's comfort level of 17 percent for the year.

As per the RBI data, total bank credit grew by Rs 98,661 crore to Rs 43.65 lakh crore as on December 30, over the levels seen in previous fortnight. While the bank loans registered 10.8 percent growth to Rs 4.27 lakh crore in the April-December 2011 period against 16 percent growth in the corresponding period last year.

While the apex bank had revised year-end credit growth projection from 19 percent to 18 percent in its second-quarterly monetary and credit policy review, it is widely speculated that the RBI may slash the credit growth projections further in the third quarter review of monetary and credit policy scheduled on January 24.

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