The banking stability indicator (BSI) worsened in the six months between September 2016 and March 2017 due to deterioration in asset quality and profitability, according to the Reserve Bank of India.
The gross non-performing advances or assets (GNPAs) ratio of scheduled commercial banks (SCBs) rose from 9.2 percent in September 2016 to 9.6 percent in March 2017, RBI said in the Financial Stability Report released on Friday.
“The stress test indicated that under the baseline scenario, the average GNPA ratio of all SCBs may increase from 9.6 percent in March 2017 to 10.2 percent by March 2018. However, if the macroeconomic conditions deteriorate, the GNPA ratio may increase further under such consequential stress scenarios.”
Under the assumed baseline macro scenario, two banks may have CRAR below minimum regulatory level of 9 percent by March 2018.
However, if macro conditions deteriorate, six banks may record CRAR below 9 percent under severe macro stress scenario. Under such severe stress scenario, the system level CRAR may decline from 13.3 percent in March 2017 to 11.2 per cent by March 2018.
A severe credit shock is likely to impact capital adequacy ratio (capital buffer for banks) and profitability of a significant number of banks.
“The domestic outlook remains positive with macroeconomic stability. Liquidity conditions remain easy. The current account deficit remains contained…However, weak investment demand, partly emanating from the twin balance sheet problem (a leveraged corporate sector alongside a stressed banking sector) is a major challenge,” RBI’s Deputy Governor N Vishwanathan said in the report’s foreword. The foreword is usually written by the Governor.
Stressed advances ratio declined from 12.3 percent (September) to 12.0 percent (March 2017) due to fall in restructured standard advances, according to the Financial Stability Report.
“While there is a fall in stressed advances ratio in agriculture, services and retail sectors, the stressed advances ratio in industry sector, however, rose from 22.3 percent to 23.0 percent mainly on account of sub-sectors such as cement, vehicle, mining and quarrying and basic metals. Accretion of new NPAs from restructured standard advances declined in 2016-17,” the report said.
Additionally, the report said that the share of large borrowers declined as a part of banks’ NPAs at 86.5 percent, down from 88.4 percent in September and 86.4 percent in March last year. In March 2015, the share was 72.8 percent.
Large borrowers accounted for 86.5 percent of gross NPAs, whereas, top 100 large exposures contribute to 25.6 per cent of GNPAs of SCBs.
During 2016-17, while deposit growth of banks picked up, credit growth remained sluggish putting pressure on net interest income (NII), particularly of the public sector banks (PSBs).[“Source-moneycontrol”]