Stressed assets in infra rose sharply: RBI

The central bank also says that even at 10%, the stressed advances remain high

The Reserve Bank of India (RBI) has raised concerns about the sharp rise of stressed assets in the infrastructure sector, which have shot up from 8.4 per cent to 29.2 per cent in one year till March 2014, its annual report for 2013-14 said.

According to the central bank, although stressed advances of the banks have declined marginally to 10 per cent of total advances in March 2014 from 10.2 per cent in September 2013, infrastructure sector’s contribution has shot up.

RBI, in its report which released on Thursday, said even at 10 per cent, the stressed advances remain high.

 

The rise of stressed assets was sharp despite the share of advances to the infrastructure sector increasing only by 0.9 per cent to 14.4 per cent at the end of March.

Iron and steel, textiles, mining (including coal), aviation along with infrastructure accounts for about 24 per cent of total advances but they comprise over half of the stressed assets.

“This implies that the stress rate of infrastructure, which was much less than the average, is now over twice that of the overall portfolio. About a fifth of all infrastructure advances are stressed and in stress tests of credit risk exposure to sectors, infrastructure impacts banks most severely on account of potential losses on future assumed impairments,” said RBI in the annual report.

The regulator has warned that it is important for the industry not to repeat the mistakes committed in the past where a push for the infrastructure projects, several of which were stalled later, had led to an increased growth in Gross Non Performing Assets (GNPAs).

The report also states that the credit quality of banks has weakened significantly and specifically there has been deterioration in NPAs for both public sector banks and foreign banks. Gross NPAs has increased from 2.4 per cent of gross advances in March 2011 to 4.1 per cent in March 2014, according to the report.

The capital adequacy ratio (CAR) has also declined from 15 per cent in December 2009 to 13 per cent in March 2014.

In order to stall the growth of the infrastructure sector’s contribution to stressed assets in the banking sector, RBI said there is a need for a more supportive legal infrastructure that helps in addressing the issue of asset quality.

The central bank has also recommended that it is necessary to also revamp the contractual relationship between private firms and the government in the infrastructure sector in order to strengthen the sector. The broad principle in such scenarios should be to allocate such risks that can be controlled or managed by the private sector to them, but many current contracts do not fully reflect this principle and this should be tackled, said the report.

To boost the infrastructure sector, the government and RBI have come out with steps in the past few months and the report said more things needs to be done to ensure effective growth of the sector.

In the Budget, the government had said Real Estate Investment Trusts  would soon be allowed to bolster the growth in the real estate sector. Apart from this, Rs 4,000 crore was allocated for low-cost housing and Rs 50,000 crore was set aside for urban housing. On the individual front, housing loan rebate on self-occupied property was increased from Rs 1,50,000 to Rs 2,00,000.

RBI has also recently exempted banks from maintaining cash reserve ratio and statutory liquidity ratio for funds that are raised through long-term infrastructure bonds for financing affordable housing and the infrastructure sector.