Banks get a breather on bad loans

Banks get a breather on bad loans

News:

Decline in Indian banks’ bad loan crisis as per RBI’s latest financial stability report.

Important Facts:

• India’s financial system remains stable, and the banking sector shows signs of improvement, even though the global economic environment and the emerging trends in financial sector pose challenges.

Financial Institutions: Performance and risks

• Credit growth of scheduled commercial banks (SCBs) has improved between March 2018 and September 2018, driven largely by private sector banks (PVBs).
• The asset quality of banks showed an improvement with the gross non-performing assets (GNPA) ratio of SCBs declining from 11.5 per cent in March 2018 to 10.8 per cent in September 2018.
• Under the baseline scenario, GNPA ratio may decline from 10.8 per cent in September 2018 to 10.3 per cent in March 2019.
• This is because RBI initiated an asset quality review of individual banks to ferret out their problematic accounts in March 2015.
• The bulk of bad loans remains concentrated with public sector banks (GNPA ratio of 14.8%), while private sector banks are much better off (3.8%)
• Analysis of the financial network structure for the period September 2017 – September 2018 reveals a shrinking inter-bank market and increasing bank linkages with asset management companies-mutual funds (AMC-MFs) for raising funds and with NBFCs/Housing Finance Companies (HFCs) for lending.
• The total proportion of ‘stressed’ loans on bank books (NPAs plus restructured loans) peaked at 12.3% in September 2016 and has steadily declined to 11.3% now.
• The average capital adequacy ratio for all banks was at a comfortable 13.4% as of September 2018.