Bank Bad Loans Fell To 6.9% By September-End: RBI Report
Banks have seen asset quality improve in H1 FY22 but restructured assets may pose a risk.
India's scheduled commercial banks have seen an improvement in asset quality, capital buffers and profitability, even as the economy continued to see the effects of the Covid crisis. Still, banks would need to strengthen their corporate governance and risk management practices to remain resilient in an uncertain economic environment, said the RBI in its "Trends and Progress Of Banking" report.
Provisional supervisory data suggest a further moderation in the gross non-performing assets ratio to 6.9% by September 2021 from 7.3% in March.
Restructured standard assets, however, rose to 1.8% by September owing to restructuring reintroduced during the second wave for retail loans and MSMEs.
The capital to risk-weighted assets ratio of scheduled commercial banks improved sequentially every quarter from end-March 2020 to reach 16.6% as of end-September 2021.
While bank asset quality has held up well so far, the RBI cautioned lenders about possible stress emerging from restructured advances.
Incipient stress remains in the form of higher restructured advances. Banks would need to bolster their capital positions to absorb potential stress as well as to augment credit flow when policy support is phased out.RBI Trends & Progress Of Banking Report
The report pointed out that write-offs remain the most used way for banks to bring down their non-performing assets.
In 2020-21, banks wrote off nearly Rs 2.08 lakh crore in assets, data included in the report said. "As observed since 2018, write-offs were the predominant recourse for lowering gross NPAs in 2020-21." PSU banks wrote off Rs 1.34 lakh crore while private banks wrote-off just under Rs 70,000 crore.
According to data published by the Indian Express, citing an RTI application, banks have written off Rs 11.68 lakh crore in loans over the past ten years, with much of this coming over the last seven years.
Among means of recoveries, recoveries via the Insolvency and Bankruptcy Code fell in FY21.
According to data in the report, 537 cases worth Rs 1.35 lakh crore were referred under IBC in FY21, a sharp fall compared to the previous year. Recoveries under IBC last fiscal year stood at a mere Rs 27,311 crore compared to over Rs 1 lakh crore a year ago.
Recoveries via IBC were at par with those via SARFAESI in FY21.
Banks have also had to grapple with rising instances of fraud.
According to the report, the number of frauds rose in the April-September 2021 period compared to a year ago but the amount involved in frauds fell.
The decline in value of frauds was largely due to a drop in advances frauds detected and reported. A part of this was because of a bunching up of fraud reporting in the last financial year.
The number of internet- and credit card-related frauds, though, rose to 1,532 in the first half of the current year, compared to 1,247 in the same period last year.
In contrast to banks, non-bank lenders saw a deterioration in asset quality, the RBI report said.
"In 2021-22 (up to September), asset quality of the sector deteriorated to some extent. Gross NPA ratio increased from 6.0% to 6.8% and net NPA ratio increased from 2.7% to 3.0%."
The role of NBFCs in the economy, however, is growing.
NBFCs’ credit intensity measured by the credit-to-GDP ratio has been rising consistently, reaching a high in 2021, the report said. Significantly, NBFCs’ credit as proportion to SCBs’ credit has also risen, it added.