NPAs at Indian banks may rise to 8.6% of loans by March: RBI

NPAs had jumped to 7.6% in March 2016 from 5.1 per cent six months ago. This is because top borrowers are accounting for more and more bad loans.

By DTE Staff
Published: Wednesday 29 June 2016
Credit: Flickr
Credit: Flickr Credit: Flickr

The Reserve Bank of India (RBI) has stated that Non-performing assets (NPAs) at Indian banks may rise to 8.6 per cent of loans by March 2017.

In its bi-annual Financial Stability Report (FSR) that was released on June 28, the RBI also revealed that NPAs had jumped to 7.6 per cent of their total assets in March 2016, up from 5.1 per cent six months ago.

The reason behind the development is that top borrowers are accounting for more and more bad loans.

“The NPA 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, public sector banks recorded the highest NPA ratio at 12.9 per cent. There was a sharp increase in the share of NPAs of top 100 large borrowers from 3.4 per cent in September 2015 to 22.3 per cent in March 2016,” the FSR report stated.

A loan is classified as non-performing when the borrower stops making interest or principal payments.

The ever-greening of books by Indian banks had forced the RBI to conduct a review to clean up the bank balance sheets. From September 2015, the RBI had set in motion the Asset Quality Review where it scrutinised banks' books and forced them to recognise over Rs 2.5 lakh crore of bad loans in the last two quarters of Fiscal Year 2015-2016, pushing up the gross bad loans to 7.6 per cent in March 2016.

This is the last FSR under Rajan, after he stunned the country this month by saying he would leave when his tenure ended on September 4.

But analysts broadly expect the next RBI Governor to continue the push to clean up the banking sector. Rajan himself made the point clear on June 28. “We need to deal with legacy issues that hold back growth and bring changes to enhance the efficacy of our business processes and conduct. The stress in the banking sector, which mirrors the stress in the corporate sector, has to be dealt with in order to revive credit growth,” he said.                                        

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