"Banking Sector NPAs May Rise To 9.8% By March 2022: RBI "
- Banks in India have seen the worst deterioration in asset quality owing to the covid-19 pandemic compared to other advanced economies, show data released by Reserve Bank of India’s financial stability report.
- While all countries saw a year-on-year increase in the default rate among both corporate and retail borrowers during the fourth quarter of CY20, it has been more pronounced in the case of banks operating in India.
What is Financial stability report?
- RBI Financial Stability Report is released by the Financial Stability and Development Council.
- The idea of the council was mooted by Raghuram Rajan Committee in 2008.
- The Union Finance Minister is the chairperson of the Financial Stability and Development Council. The other members include RBI Governor and other senior officials of RBI.
- The report is published biannually and reflects an assessment on the risks to financial stability.
What is NPA?
- A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
What does latest report reveal?
- Contrary to all expectations of NPAs increasing due to the pandemic, the report reveals that they were pretty much under control at 7.5% in March 2021. This should come as a relief to the market as earlier beleif were in the region of 12-15%.
- Other encouraging revelation is that the stress tests indicate that under normal conditions the NPA ratio will increase to 9.8% by March 2022.
- Significantly, in terms of restructured assets, the ratio is just 0.9%, which is low and surprising because it was felt that the one-time restructuring exercisewould have led to several companies exercising this option, which didn't happened.
Sectors of concern for NPAs
- CGEM (construction, gems and jewelry, engineering and mining) have over 15% ratio
- Metals, infra, power, textiles, food etc. are in double digits.
- Chemicals and auto with 5-7% range.