In graphs: The grim story of India's bad loans

According to the RBI's Financial Stability Report, the industry's gross bad loans are at a 14-year high.
As the RBI's March 2017 deadline for banks to clean up soured credit looms closer, Shailajanand Mishra takes stock of just how bad the situation is.
Illustration: Dominic Xavier/Rediff.com
Graphs design: Ashish Narsale/Rediff.com

The deadline for the Reserve Bank of India's asset quality review (AQR) is almost upon the banks, but according to the central bank's Financial Stability Report, bad loans at Indian banks are at a distressing high.

'The gross non-performing advances (GNPAs) ratio of scheduled commercial banks (SCBs) increased to 9.1 per cent from 7.8 per cent between March and September 2016,' the report reveals, 'pushing the overall stressed advances ratio to 12.3 per cent from 11.5 per cent.'

Bloomberg Quint pegs this as a 14 year high: 'That's the highest since the year ended March 2002.'

The RBI report says the Banking Stability Indicator (BSI) 'shows that the risks to the banking sector remained elevated due to continuous deterioration in asset quality, low profitability and liquidity.'

• The business growth of SCBs remained subdued with public sector banks (PSBs) continuing to lag behind private sector peers. Given the higher levels of impairment, SCBs may remain risk averse in the near future as they clean up their balance sheets and their capital position may remain insufficient to support higher credit growth.
• System level profit after tax (PAT) contracted on year-on-year basis in the first half of 2016-2017.
• The large borrowers registered significant deterioration in their asset quality.
• The asset quality of scheduled urban co-operative banks (SUCBs) as well as non-banking financial companies (NBFCs) deteriorated.

'The asset quality of large borrowers deteriorated significantly,' the report discovered.

It registered that the share of special mention accounts (SMAs) -- a category created for early detection of problematic borrowers -- increased across bank groups.

To add to that, 'The share of large borrowers' in SCBs' total loan portfolio declined between March and September 2016, whereas, their share in GNPAs increased during the same period.'

The BSI, it added, 'shows that the risks to the banking sector remained elevated since the publication of the last FSR.'

Under a 'macro stress test,' the report pointed out, the GNPA ratio may rise even more by March 2017, the RBI's AQR deadline.

Earlier, the International Monetary Fund's Global Financial Stability report also indicated the same problem.

'Banking systems are vulnerable to further declines in growth or profits, particularly in countries at later stages of the credit cycle (such as India), where slowing credit growth and risks from elevated levels of non-performing loans are most acute,' the IMF said.

• Bank NPAs are just the tip of the iceberg

Here's how India's grim story of NPAs looks"

 Source: IMF and Credit Suisse

Source: RBI

 Source: RBI

Source: RBI, Parliament

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