Bad loans at banks will rise further this fiscal: RBI report

Bad loans at banks will rise further this fiscal: RBI report

Gross NPA ratio of banks to rise to 12.2% by March 2019 if economic conditions stay the same

Bad loans at Indian banks, especially those controlled by the government, will increase further in the year to March 31, placing additional strain on the already stressed financial system, a central bank study warned. Gross non-performing asset ratio of banks will rise to 12.2% by March 2019 from 11.6% at the end of the previous fiscal if economic conditions remain the same, said the Reserve Bank of India financial stability report released on Tuesday.

RBI’s latest report said that weak profitability of banks is an additional concern as it prevents lenders from setting aside adequate money to cover potential losses on loans and makes them vulnerable to adverse shocks. In a scenario of severe stress, this ratio may rise to as high as 13.3% by March, the report said. For public sector banks, this ratio may jump to 17.3% by March. Rising bad loans will also lead to further erosion of capital buffers. The capital adequacy ratio of banks will drop to 12.8% by March 2019 from 13.5% at the end of the previous year. A severe shock could, however, bring down the capital adequacy ratio of as many as 20 banks, mostly state-run, below 9%, the report said. Analysing the effectiveness of the prompt corrective action (PCA), the stability report said that the gross NPA ratio of PSU banks under PCA will worsen to 22.3% by March with six banks likely to experience capital shortfall under the baseline scenario.

“The ongoing churning in the financial sector following the operational-risk related incidents, the prompt corrective action on under-capitalised banks to prevent further deterioration and gradually nurse them back to health, and the disintermediation underway from bank to non-bank finance are all inevitable given the circumstances but need to be monitored carefully,” Viral Acharya, deputy governor, RBI wrote in the foreword to the report. “At such a juncture, the government’s front-loaded recapitalisation programme for the beleaguered public sector banks (PSBs) should impart robustness to the financial sector as a whole; however, governance reforms and market capital-raising appear to have again taken the backseat at the PSBs.”

The 11 banks under PCA framework are IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank. The report also said that RBI’s MUMBAI: Public sector banks accounted for over 85% of total frauds reported in the banking system in 2017-18, according to RBI’s financial stability report. The banking system reported 6,500 frauds, amounting to more than ?30,000 crore. “In recent years, frauds reported for amounts of more than ?1 lakh in the Indian banking sector show an increasing trend both in terms of number and quantum. In terms of the relative share of frauds, PSBs have a disproportionate share,” said the report enforcement department, which was set up to monitor banks in case they violate rules, has taken action against 13 banks (including a payment bank and a small finance bank) and imposed an aggregate penalty of ?96.4 crore between July 1, 2017 and May 31.

The Hindustan Times, 27th June 2018, New Delhi

Household debt up, but India still lags emerging-market economies: RBI

Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...

CA Online

Search This Blog