Banks’ NPAs could shoot up to 9.3% in FY’17, warns RBI

Foreseeing a worsening bad loans situation in the country, the Reserve Bank of India on Tuesday said the gross non-performing assets of the banks could rise to as high as 9.3 per cent in 2016-17 after hitting 7.6 per cent in March 2016.

Banks' gross non-performing assets (NPAs) stood at 5.1 per cent in September 2015, a report released by the RBI said.

"Gross NPAs of banks sharply increased to 7.6 per cent of gross advances from 5.1 per cent between September 2015 and March 2016 after asset quality review," according to the Financial Stability Report (FSR) released by RBI.

Net non-performing advances as a percentage of the total net advances increased to 4.6 per cent in March 2016 from 2.8 per cent in September 2015.

The report said macro stress tests suggest that under the baseline scenario, the GNPA ratio of banks may rise to 8.5 per cent by March 2017 from 7.6 per cent in March this year.

"If the macro scenarios deteriorate in the future, the GNPA ratio may further increase to 9.3 per cent by March 2017 under at severe stress scenario," the report said.

The RBI conducted asset quality review (AQR) during the second half of 2015-16 and it covered 36 banks (including all public sector banks), which accounted for 93 per cent of the banks' gross advances.

The sample reviewed in AQR constituted over 80 per cent of the total credit outstanding and 5 per cent of the number of accounts of the banking system reported through CRILC.

The main objective of AQR was to examine the assessment of asset quality at the bank level and at the system level as a whole and to uniformly deal with cases of divergence in identifying NPAs and additional provisioning across banks.

The RBI said among the banks, PSBs may continue to register highest GNPA ratio.

Under the baseline scenario, PSBs GNPA ratio may go up to 10.1 per cent by March from 9.6 per cent as of March 2016.

However, under a severe stress scenario, it may increase to 11 per cent by March 2017.

The report said the GNPA ratio of private sector banks, under the baseline scenario, may rise to 3.1 per cent by March 2017 from 2.7 per cent as of March 2016, which could further increase to 4.2 per cent under a severe stress scenario.

The report further said there was a sharp reduction in restructured standard advances ratio to 3.9 per cent in March from 6.2 per cent in September.

The PSBs continued to hold the highest stressed advances ratio at 14.5 per cent, whereas both private sector and foreign banks recorded stressed advances ratio at 4.5 per cent.

Among the major sectors, industrial showed a decline in the stressed advances ratio from 19.9 per cent to 19.4 per cent between September 2015 and March 2016, though the GNPA ratio of the sector increased sharply to 11.9 per cent from 7.3 per cent.

Among the major sub-sectors within industrial sector, basic metal and metal products accounted for the highest stressed advances ratio as of March followed by construction and textiles.

The stressed advances ratio of the infrastructure sector declined to 16.7 per cent from 21.8 per cent between September 2015 and March 2016.

FSR further said share of large borrowers' in total loans increased from 56.8 per cent to 58 per cent between September 2015 and March 2016.

Their share in GNPAs also increased from 83.4 per cent to 86.4 per cent during the same period.

The GNPA ratio of large borrowers increased sharply from 7 per cent to 10.6 per cent during September 2015 to March 2016 and the increase was evident across all bank groups.

In this respect, PSBs recorded the highest GNPA ratio at 12.9 per cent.

The report said both return on assets (RoA) and return on equity (RoE) of banks' declined sharply to 0.4 per cent and 4.8 per cent, respectively, in March 2016 from 0.8 per cent and 9.3 per cent in March 2015.

Profit after tax (PAT) declined by 43 per cent during the financial year 2015-16, due to sharp increase in risk provisions and write-off, the report said.

It said overall credit and deposit growth of banks' remained in single digits because of subdued performance of PSBs.

Credit growth of all banks, on a y-o-y basis, declined to 8.8 per cent in March 2016 from 9.4 per cent in September 2015 while the growth in deposit declined to 8.1 per cent from 9.9 per cent.

The relative performance of bank groups reflects their respective strengths amidst on-going industry-wide balance sheet repair and also sluggish growth in private capex, the report said.