Under a “baseline stress scenario”, that ratio may rise to 8.5 percent by next March, the deadline set by RBI Governor Raghuram Rajan for banks to clean up soured credit, the report showed. “With gross non-performing asset (GNPA) ratio at around 1.3 per cent, the retail housing segment does not presently pose any significant systemic risk in the Indian context”, the report said.
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Outgoing RBI Governor, Rajan had in the past asked public sector banks to push to ensure that PSUs classify unreliable stressed assets as non-performing assets and make provisions to ensure their long term health.
The RBI previous year told banks to conduct an asset quality review (AQR) in a bid to get a better picture of the extent of potentially soured assets held in the sector.
According to the RBI, gross NPAs rose sharply to 7.6 per cent of gross advances in March from 5.1 per cent in September 2015 because of the reclassification of restructured advances into NPAs following the review.
Under such a severe stress scenario, the system level capital to risk weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) may decline to 11.5 per cent by March 2017 from 13.2 per cent as of March 2016.
Compared with the overall GNPA ratio of 7.6 per cent for the entire banking system as of March, the stress in the retail loans is very low, making it the fastest growing segment for the banks. Banks’ gross NPA had stood at 5.1% in September 2015, a report released by RBI said. However, if banks’ asset quality faces any severe stress, it could rise to 9.3 per cent.
The exercise sought to validate objective compliance with applicable income recognition, asset classification and provisioning (IRACP) norms and exceptions were reported by the supervisors as divergences in asset classification and provisioning.
“Among the major sub-sectors within the industrial sector, basic metal & metal products accounted for the highest stressed advances ratio as of March 2016 followed by construction and textiles”.
Going by the share in total debt as well, their share came down to 20.6 per cent from 33.8 per cent, it said.
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“Given the higher level of balance-sheet impairment, banks may remain risk averse for some more time as their focus would be on strengthening” those balance sheets, according to the report.
