Now, private banks face bad loans heat

Now, private banks face bad loans heat

Context

Rise of NPAs in private sector banks

What has happened?

Private sector banks registered a 40.8% year-on-year increase in gross non-performing assets as of September 30, 2017, according to latest data released by the Reserve Bank of India (RBI)

• In comparison, gross NPAs at public sector banks (PSBs) rose by 17% over the corresponding period
• Industry-wide gross NPAs increased 18.5%

Gross & Net NPA Ratio

• Banking sector: The gross NPA ratio of the banking sector increased to 10.2% in September, from 9.6% in March, while net NPA ratio rose to 5.7%, from 5.5%
• Private sector banks: The total net NPA ratio of private sector banks as on September 30, at 2%, is much lower than the 5.7% for PSBs

Financial Stability Report

In its Financial Stability Report released on Thursday, the RBI said

• Under the baseline macro scenario, the GNPA ratio may increase to 10.8% by March 2018 and further to 11.1% by September 2018
• The ongoing deleveraging in the heavily indebted parts of the corporate sector and muted credit growth in public sector banks pose a risk to growth. Subdued credit, which may also be a consequence of thin capital buffers of PSBs, leads to lower investments in the economy
• Credit growth in major sectors as well as industries has witnessed a decline over the past two years
• Silver lining: The number and cost of stalled projects reported in the second quarter of the current fiscal had declined from the first quarter
• The positive signals of improvement – the decline in number and cost of stalled projects, the efforts to improve the quality of government expenditure, ease of doing business ranking, sovereign rating upgrade by Moody’s and the bank recapitalisation announcement are expected to provide a significant fillip to investment sentiment in the coming quarter