Bank NPAs may go beyond 8% by September 2022, says RBI report

Bad loans of commercial banks in India may rise to between 8.1 and 9.5 per cent under varied degrees of stress by September 2022 from 6.9 per cent in September 2021.

Yet, banks are generally well placed to weather credit-related shocks with sufficient capital, both at the aggregate and individual levels. This is possible even under stress, according to the Financial Stability Report (FSR).  

FSR, the Reserve Bank of India’s (RBI’s) bi-annual report, said though banks are in better shape, urban cooperative banks (UCBs) and finance companies present a more varied picture. 

Going forward, as the economy recovers and credit demand rises, banks will need to ensure availability of sufficient capital to support credit growth. 

Non-banking finance companies (NBFCs) and UCBs will have to be mindful of frailties on the liquidity front and ensure robust asset-liability management, apart from improving the quality of their credit portfolios. 

Considering the significant share of funding absorbed by NBFCs at the system level, continued attention to their financial health is warranted in the interest of financial stability.

Gross non-performing assets (gross NPAs) of commercial banks fell from 7.5 per cent in March 2021 to 6.9 per cent at end-September 2021. 

Concomitantly, their net NPA ratio declined by 10-basis points to 2.3 per cent in September 2021 from 2.4 per cent in March 2021. 

The annualised slippage ratio of commercial banks inched up, with private banks exhibiting a higher rate of deterioration in asset quality. However, their provisioning coverage ratio (PCR) moved up from 67.6 per cent in March 2021 to 68.1 per cent in September 2021.

The report said the share of large borrowers in gross NPAs fell from 75.9 per cent in March 2021 to 62.1 per cent in September 2021. 

In sectoral terms, gross NPA ratio for personal loans rose above its level six months ago as well as a year ago. The deterioration was led by housing and auto loans. Gross NPA ratio for the industrial sector continued to decline. 

However, some sub-sectors, like food processing, chemical and infrastructure (excluding electricity) registered increases over their March 2021 levels.

The FSR said restructuring by entities impacted by the second wave under resolution framework 2.0 stood at 1.5 per cent of total advances as at end-September 2021. 

In the case of micro, small and medium enterprises (MSMEs) and retail loans, the restructuring was to the extent of 2.4 per cent of total sectoral advances. It covered 80 per cent of borrower accounts where it was invoked.