The Reserve Bank of India’s latest Financial Stability Report (FSR) has expressed serious concerns about the health of the banking sector. It said there has been very rapid deterioration in asset quality of the banks. The report, however, said overall, the country’s financial system remains stable, but the stress on banking sector, particularly on the public sector banks ‘remain significant’. RBI said in the biannual report that the risks to the banking sector remained elevated due to continuous deterioration in asset quality, low profitability and liquidity. Business growth in banks remained subdued, particularly in case of PSBs, which lagged their private sector counterparts. The report noted that the gross non-performing advances (GNPA), or bad debts, ratio of banks increased to 9.1% at the end of September 2016 from 7.8% in March, pushing the overall stressed advances ratio to 12.3% from 11.5%, as large borrowers registered significant deterioration in their asset quality and their share in the total bad debt went up, while the share in credit came down. The worrying factor for banks was that the large borrowers piled up in the special mention accounts monitored for non-payment of dues between 61-90 days.
