RBI policy review: Banks have more bad debt covered on higher provisioning

Indian banks have fortified their balanced sheets by substantially hiking provision for bad loans in FY18. Reserve Bank of India says the provision coverage is expected to improve further.  

N S Vishwanathan, deputy governor, RBI, said: “We have taken note of the financials reported by the banks. Much of it is given by better recognition of NPAs. A notable feature of this is the provision coverage ratio, which for almost all the banks has gone up substantially."

According to Rama Patel, Director, CRISIL Ratings, banking system’s provisioning cover (excluding write-offs) for NPAs increased to 50 per cent as on March 31, 2018, as against 45 per cent the previous back. This is expected to improve further this fiscal year.”  

However, higher provisioning and the resultant losses have materially eroded Rs 1.2 trillion of the capital raised by public sector banks last fiscal year. Of this, Rs 900 billion was from the government, Patel said.

Vishwanathan said: “We need to see this (provision coverage) in the context of the kind of resolution of the two large cases that have happened. In both cases, the banks earned money as the provisions made by them were much higher.”

Banks have earned more than their provisions in two big-ticket stressed loans – Bhushan Steel and Electrosteel Steel – which were under insolvency proceedings at the National Company Law Tribunal. Tata Steel got Bhushan Steel while Vedanta took control of Electrosteel.    

The RBI executive said in other cases the banks will have some write-back in terms of the provisions they have made and going forward things should improve. 

High defaults on small home loans a matter of worry, says RBI

Flagging high default rate in small-ticket home loans, the Reserve Bank of India warned that it may tighten loan-to-value ratio (LTV) and increase the risk weights for such loans to bring discipline.  

After a careful analysis of the housing loans data, it is observed that the level of non-performing assets for the ticket size of up to Rs  0.2 million has been high and is rising briskly.

Banks need to strengthen their screening and follow up in respect of the lending to this segment in particular.