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Banking sector risks are worrying, says RBI

The Reserve Bank of India has warned that the banking industry in the country faces higher risks because of increasing bad loans and restructuring of debt by stressed corporate borrowers. The high level of inflation also is a cause for concern, the central bank sais in its biannual financial stability report. It said in fact the risks have increased since the previous FSB was published on 27 June.

Says the report: “All major risk dimensions captured in the banking stability indicator show increase in vulnerabilities in the banking sector. Asset quality continues to be a major concern for scheduled commercial banks (SCBs). The gross non-performing assets (NPA) ratio of SCBs as well as their restructured standard advances ratio have increased.”

Slowing economic growth (5% in the year ended March, which is the least in a decade), high borrowing costs and projects stalled because of delays in securing government and regulatory approvals have made it difficult for many borrowers to repay debt, causing an increase in bad loans, according to the report, which also pointed out that the gross NPAs of 40 listed banks grew 36.95% to Rs.2.29 trillion in the September quarter from Rs.1.67 trillion a year earlier.

RBI also said the increase in restructured advances is also a worrying factor.

Indian banks have restructured about Rs 4 trillion in loans of stressed borrowers through the corporate debt restructuring (CDR) mechanism and by way of bilateral agreements. On a cumulative basis, banks restructured Rs 2.7 trillion worth of loans under the CDR mechanism as of September. Of these, Rs 2 trillion of loans are currently being recast after some borrowers exited the CDR platform.

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