The Reserve Bank of India (RBI) has said that the ration of bad loans has improved from last year. It is expected to further decline in March 2019’s financial results. However, despite the iDasmprovement, the current levels of bad loans are still too high for comfort, said RBI governor Shaktikanta Das.
The Reserve Ban of India released its biannual financial stability report (FSR) on Monday. The report said that the gross non- performing assets (GNPA) ratio of banks has declined to 10.8 per cent in September 2018 from 11.5 per cent in March 2018. Further stress tests undertaken by the RBI show that under its baseline scenario, the GNPA ratio may decline from 10.8 per cent in September 2018 to 10.3 per cent in March 2019.
Das said in a foreword to the report, “After a prolonged period of stress, the banking sector appears to be on course to recovery as the load of impaired assets recedes – the first half-yearly decline in gross NPA ratio since 2015, and improving Provision Coverage Ratio, being positive signals. Stress test results suggest further improvement in NPA ratio.”
According to Das, the clean- up through enhanced recognition of bad loans appears to have led to greater discipline in credit assessment, higher sensitivity to market risk and a better appreciation of operational risks.
Among the lenders, public sector banks’ GNPAs may drop to 14.6 per cent in March 2019 from 14.8 per cent in September under a baseline stress scenario. For private banks, the ratio could drop to 3.3 per cent from 3.8 per cent.
However, Das highlighted the risk being posed by private conglomerates (FCs) where intragroup transactions create an opportunity for regulatory arbitrage. The comment comes in the wake of IL&FS default crisis where funds were borrowed by one entity but used by other companies in the group.