The Reserve Bank of India (RBI) has warned in the wake of the prolonged slowdown in the economy that the crisis of non-performing assets (NPA) of banks in the country may aggravate in the next nine months. The central bank has said that this is due to the slowdown in the economy, failure to pay loans and the decrease in credit growth.
The RBI’s Financial Stability Report (FSR), published twice a year in June and December, has pointed at ratings shopping (using agencies desired to get ratings of choice) by medium-rated companies.
RBI has said that large corporate companies currently have no shortage of cash, due to which they have no need for loans, which is a major reason for the reduction in the rate of credit growth in the current situation. According to the report, the credit growth of PSBs declined to 8.7% as of September 2019, compared to 16.5% for private banks.
Situation turning bad to worse for banks
The RBI warned that after the government recapitalisation of state-run banks, while the capital adequacy ratio (CAR) of banks increased significantly to 15.1% in September 2019, it is projected to decline to 14.1% by September 2020. The provision covering ratio (PCR) has also risen to 61.5% from 60.5% in the year-ago period.
CAR is the ratio of a bank’s capital in relation to its risk-weighted assets and current liabilities.
The RBI said that the gross NPA ratio of banks will increase from 9.3% in September 2019 to 9.9% in September 2020, largely due to macro-economic scenario, failure in loan payments and decline in credit growth.
According to the report, the total debt of PSBs will rise from 12.7% in September 2019 to 13.2% in September 2020. For private banks, this figure will increase from 3.9% to 4.2%. For foreign banks, this figure will increase to 3.1% from 2.9%.
The central bank said that net NPA of Indian banks declined to 3.7% in September 2019 due to increased provisioning.