Bank’s gross NPAs may rise to 10.8% in March 2018, 11.1% by Sept: RBI

22 Dec 2017 Evaluate

The Reserve Bank of India (RBI) in its half-yearly Financial Stability Report (FSR) has warned against further downside risk for banks, as asset quality concerns are far from resolved and has said that the gross non-performing assets (NPAs) in the Indian banking sector shot up to 10.2 percent as of the September quarter, primarily led by private sector lenders. RBI’s stress tests suggest that in the baseline scenario, gross NPAs of the banking sector may rise to 10.8 percent in March 2018 and further to 11.1 percent by September 2018. However, it added that stress in the Indian banking sector remains high but it may be close to bottoming out.

According to the FSR, overall risk to financial system remained ‘stable’. Between March and September, the GNPA advances ratio of scheduled commercial banks (SCBs) increased from 9.6 percent to 10.2 percent, and the stressed advances ratio marginally increased from 12.1 percent to 12.2 percent. Public sector banks (PSBs) registered Gross NPA ratio at 13.5 percent and stressed advances ratio at 16.2 percent in September. It also noted that if the macro conditions deteriorate, CRAR or capital-to-risk (weighted) assets ratio of SCBs goes below the minimum regulatory requirements. Under the severe stress scenario, the system level CRAR declines from 13.5 percent in September 2017 to 11.5 percent by September 2018.

The central bank further said that the recent capitalisation plan announced by the government for PSBs is expected to significantly augment capital buffers of affected banks as also the credit growth. The FSR said that SCBs have continued to be the dominant players accounting for nearly 47 percent of the bilateral exposure followed by asset management companies managing mutual funds, NBFCs, insurance companies, housing finance companies and all-India financial institutions. The report also said that the overall investment climate remains challenging despite registering an improvement from the first quarter of the current fiscal. RBI added that the global economy has picked up steam and the growth momentum appears sustainable.

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