Expressing confidence of a turnaround in the banking sector following an increase in recovery and resolution of bad loans, RBI governor Shaktikanta Das on Monday said the period till September had seen a decline in gross non-performing asset ratios — a first such dip in three years.
Das, who took over as RBI governor after the sudden exit of Urjit Patel this month, however, had a word of caution for state-run lenders. He said besides reforms in governance, public sector banks need support through recapitalisation.
“After a prolonged period of stress, the banking sector appears to be on course to recovery as the load of impaired assets recedes,” Das said in his foreword to RBI’s half-yearly financial stability report (FSR). State-run lenders, which account for a bulk of the dud assets, need operational improvements, he said.
According to the report, gross NPAs ratio declined to 10.8 per cent in September 2018 from 11.5 per cent in March 2018, while for the state-run lenders, the same improved to 14.8 per cent in September 2018 from close to 15.2 per cent in March 2018. The RBI Governor expressed hope that the GNPA ratio of all banks would come down to 10.3 per cent by March 2019 from 10.8 per cent in September 2018.
Gross NPAs of the banking system shot up to Rs 10,39,700 crore, or 11.2 per cent of total advances, during the fiscal ended March 2018 as against Rs 791,800 crore (9.3 per cent of advances) in the same period of last year.
Das said even though the current NPA levels were high, stress tests done by the RBI had pointed to an improvement in the ratio in future. “The immense effort put in by the stakeholders so far is required to be buttressed with substantive reforms in governance and oversight regime, supported by recapitalisation of weak PSBs,” he said.
His comments come days after the Centre committed an additional Rs 41,000 crore in FY19 for the recapitalisation. Eleven of the 20 state-run lenders are under the prompt corrective action (PCA) framework, which restricts their normal lending and is a bone of contention between the RBI and the government.
The governor, meanwhile, said the Insolvency and Bankruptcy Code (IBC) would strengthen credit discipline. The IBC, under which cases started flowing in from January 2017, has been one of the biggest financial reforms in the current year to tackle NPAs in the banking sector.
According to data analysed by The Indian Express on cases that underwent successful resolution under the IBC, the financial creditors could recover a total of Rs 58,385.23 crore out of their total claims of Rs 1,26,303 crore.
“A time-bound resolution of impaired assets will go a long way in unclogging the credit pipeline thus improving the allocative efficiency in the economy,” he said. Das also touched on the troubled non-bank lending sector, saying the non banking finance companies (NBFCs) need to be more prudent on risk-taking and also underlined the need to rebalance excessive credit growth, especially the one funded by short term liabilities.
Das said the slowdown in GDP growth to 7.1 per cent is slower than expected, but pointed out to an uptick in gross fixed capital formation along with the dip in crude oil prices as a positive for a sustained growth going forward.
(With PTI inputs)