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Macro stress tests for credit risk show that under the baseline scenario, scheduled commercial banks’ (SCB) gross non-performing asset (GNPA) ratio may increase from 9.3 per cent in September 2019 to 9.9 per cent by September 2020, according to the Reserve Bank of India’s latest Financial Stability Report (FSR).
The report reasoned that this is primarily due to the change in macroeconomic scenario, marginal increase in slippages, and the denominator effect of declining credit growth.
Among the bank groups, FSR assessed that under the baseline scenario, public sector banks’ (PSB) GNPA ratios may increase to 13.2 per cent by September 2020 from 12.7 per cent in September 2019, whereas for private sector banks (PVB), it may increase to 4.2 per cent from 3.9 per cent; and for foreign banks (FB), it may increase to 3.1 per cent from 2.9 per cent in September 2019.
According to the report, loans classified as special mention account 2 ( principal or interest payment or any other amount wholly or partly overdue between 61 to 90 days) in the case of large borrowers, increased by abou t 143 per cent between March 2019 and September 2019.
A large borrower is defined as one who has aggregate fund-based and non-fund based exposure of ₹5 crore and above. The asset quality of agriculture and services sectors, as measured by their GNPA ratios, deteriorated in September 2019 when compared to March 2019.
In the case of agriculture and services sector, GNPAs deteriorated to 10.1 per cent (from 8.5 per cent in March 2019) and 6.3 per cent (5.7 per cent). For the industry sector,GNPAs during the period declined to 17.3 per cent from 17.5 per cent.
The GNPAs for the retail sector was unchanged at 1.8 per cent. The share of large borrowers in SCBs’ total loan portfolios and their share in GNPAs was at 51.8 per cent and 79.3 per cent, respectively, in September 2019; these were lower when compared to 53 per cent and 82.2 per centin March 2019.
The banking stability indicator shows that there was an improvement in the banking sector’s soundness, profitability, efficiency and liquidity in September 2019 when compared to March 2019
Credit growth
The aggregate growth (y-o-y) in the banking sector’s gross loans and advances slowed noticeably from 13.2 per cent in March 2019 to 8.7 per cent in September 2019. The deposit growth improved from 9.9 per cent to 10.2 per cent.
The banking sector’s credit growth falling short of deposit growth was last seen during Q2 2016-17.
Among bank groups, credit growth of PSBs decelerated to 4.8 per cent y-o-y in September 2019 from 9.6 per cent in March 2019; PVBs’ credit growth moderated to 16.5 per cent from 21 per cent.
The report observed that PSBs’ weak return on equity and return on assets numbers, when compared to their private sector counterparts, continue to come in the way of their ability to raise equity capital from the market at a decent cost.
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