Financial Stability Report: RBI Sees Bank NPAs Fall To 9% By March 2020
With the bulk of legacy bank NPAs already recognised in the banking books, the cycle appears to be turning around, RBI says.
The Reserve Bank of India expects bad loans to continue to fall in the current financial year, as an early turnaround in asset quality picks up pace.
Gross non-performing assets of scheduled commercial banks are expected to decline to 9 percent by March 2020 from 9.3 percent in March 2019, under the baseline scenario, the RBI said in its Financial Stability Report published on Thursday.
Gross NPAs may be slightly higher at 9.2 percent under a scenario where the economy is under “medium”stress” and at 9.6 percent under a “severe stress” scenario.
For public banks, gross NPA ratio may decline to 12.0 percent by March 2020 under the baseline scenario. The decline in bad loans to 12.6 percent, was the sharpest for public sector banks in March 2019, from over 15 percent a year ago.
Private banks are expected to see Gross NPA ratio fall to 3.2 percent by March 2020 from 3.7 percent under the same scenario.
A break-up of bad loans for industry showed a decline, as did stressed assets across most individual sectors.
- Across all industrial loans, gross NPAs stood at 17.5 percent
- Bad loans in the basic metals segment stood at 28.5 percent
- In the mining sector, bad loans were at 26.7 percent
- For the infrastructure sector, bad loans stood at 17.8 percent
Improved Capital And Provision Coverage
Banks are also looking healthier now in terms of the amount of provisions and capital they hold on their balancesheet.
The Provision Coverage Ratio of all banks rose sharply to 60.6 percent as of March 2019 from 52.4 percent in September 2018 and 48.3 percent in March 2018, increasing the resilience of the banking sector, the report said.
Capital adequacy of the banking system has also improved due to the capital provided by the government to public sector banks. Still, some lenders will need additional capital, the RBI’s stress tests showed.
As many as five SCBs may have capital adequacy ratio below the minimum regulatory level of 9 percent by March 2020 without taking into account any further planned recapitalisation by the government. However, if macroeconomic conditions deteriorate,nine SCBs may record capital adequacy below 9 percent under a severe macro-stress scenario.
Pick Up In Credit Growth
Aggregate credit growth on a year-on-year basis improved marginally to 13.2 percent in March 2019 from 13.1 percent in September 2018, said RBI. Public sector banks registered near double-digit growth of 9.6 percent in March 2019 while private bank growth remained strong at 21 percent.
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