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RBI raises red flag on bad loans

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The Financial Stability Report (FSR) published by the Reserve Bank of India (RBI) on Thursday raised red flags about the health of the banking sector as lenders struggle with rapid deterioration in asset quality at a time of lower business growth.
Overall, India’s financial system remains stable, but the stress on banking sector, particularly on the public sector banks (PSBs) “remain significant”, the central bank noted.
“The risks to the banking sector remained elevated due to continuous deterioration in asset quality, low profitability and liquidity,” said the biannual FSR, published by RBI after taking inputs from all financial sector regulators.
Business growth in banks remained subdued, particularly in case of PSBs, which lagged their private sector counterparts. System level profit also contracted in the first half of 2016-17.
Add to that, the gross non-performing advances (GNPA), or bad debts, ratio of banks increased to 9.1% at the end of September 2016 from 7.8% in March, pushing the overall stressed advances ratio to 12.3% from 11.5%, as “large borrowers registered significant deterioration in their asset quality” and their share in the total bad debt went up, while the share in credit came down.
The worrying factor for banks was that the large borrowers piled up in the special mention accounts monitored for non-payment of dues between 61-90 days.
Business Standard New Delhi,30th  December 2016

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