The share of large borrowers in Indian banks’ total loan portfolios stood at 53% as on March 2019
The gross non-performing assets (NPAs) as a percentage of total loans stood at 9.3% as on March 2019
Mumbai: Indian banks continue to see an improvement in asset quality with bad loans as a percentage of total loans expected to fall to 9% by March 2020, according to the Financial Stability Report released by the Reserve Bank of India (RBI) on Thursday.
The gross non-performing assets (NPAs) as a percentage of total loans stood at 9.3% as on March 2019.
According to the bi-annual report, stress tests done on public sector banks (PSBs) revealed that gross non-performing ratio may decline to 12% by March 2020 from 12.6% in March 2019. Private sector banks too could see a fall in gross NPAs to 3.2% from 3.7% during the same period.
These stress tests for credit risk were done to test the resilience of Indian banks against macroeconomic shocks. It encompassed a baseline and two (medium and severe) adverse macroeconomic risk scenarios.
Under the baseline scenario, the capital adequacy for banks is expected to come down to 12.9% in March 2020 from 14% in March 2019.
“As many as five SCBs may have CRAR below the minimum regulatory level of 9% by March 2020 without taking into account any further planned recapitalisation by the government. If macroeconomic conditions deteriorate, nine SCBs may record CRAR below 9% under a severe macro-stress scenario," said the report.
The stress test on banks’ credit concentration showed that eight banks, accounting for 14.6% of the total assets, could be affected if top three individual borrowers failed to repay under an extreme scenario. The share of large borrowers in banks’ total loan portfolios and their share in gross NPAs stood at 53% and 82.2%, respectively as on March 2019.
“Efforts to improve the balance sheets of banks should therefor continue. Among others, there should be special focus on governance reforms in banks. As far as PSBs are concerned, the proof of the pudding lies in the PSBs’ ability to attract private capital through market discipline rather than being overly dependent on the government for capital," said Shaktikanta Das in a foreword to the report.
A recent Crisil report also showed a significant reduction in system-wide NPAs to 8% by March 2020, driven by resolution of large-ticket stressed assets and slowing pace of fresh accretion to NPAs. Public sector banks, which account for over 80% of the NPAs in the system, should see their gross NPAs climb down to 10.6% by March 2020 from a peak of 14.6% in March 2018, the report said.
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