The banking sector’s bad loan problem may not end any time soon, instead it could further aggravate, according to the Reserve Bank of India (RBI). The banking stability indicator (BSI) shows that the risks to the sector remain at an elevated level weighed down by further asset quality deterioration, the central bank said.
The gross non-performing advances ratio of scheduled commercial banks (SCBs) increased from 9.6 per cent to 10.2 per cent between March and September 2017, as per RBI’s financial stability report released on Thursday. GNPAs grew by 18.5 per cent y-o-y basis in September 2017. Private sector banks registered a higher increase in GNPAs of 40.8 per cent as compared to their public sector counterparts (17 per cent).
The asset quality of SCBs deteriorated across broad sectors between March and September 2017 with the industrial sector leading, said the report.
The Indian banking system’s resilience to macroeconomic shocks was tested through a macro stress test for credit risk. The macro stress test for credit risk indicates that under the baseline macro scenario, the GNPA ratio may increase to 10.8 per cent by March 2018 and further to 11.1 per cent by September 2018, RBI warned.
GNPA ratio of PSBs increased from 12.5 per cent to 13.5 per cent between March and September 2017. Stressed advances ratio of PSBs rose from 15.6 per cent to 16.2 per cent during the period. The net non-performing advances (NNPA) as a percentage of total net advances increased from 5.5 per cent to 5.7 per cent between March and September 2017. PSBs recorded distinctly higher NNPA ratio of 7.9 per cent.
The total stressed advances of large borrowers increased by 2.4 per cent between March and September 2017. Advances to large borrowers classified as special mention accounts-2 (SMA-2) also increased sharply by 56.5 per cent during the same period.
SCBs’ return on assets (RoA) remained unchanged at 0.4 per cent between March and September 2017, while PSBs continued to record negative profitability ratios since March 2016.