The latest Financial Stability Report by the Reserve Bank of India indicates that the gross bad loans of commercial banks could rise to 8.5% of total advances by March 2017 from 7.6% in March 2016. The report said the macro stress test suggests that under the baseline scenario, the gross NPA may rise to 8.5% by March 2017 and if the macro situation deteriorates in the future, the gross NPA ratio may increase further to 9.3% by March 2017. The gross bad loans of public sector banks increased to 9.6% as of March 2016, from about 6% a year earlier, the report showed. The report also said there was an almost 80% jump in gross bad loans in 2015-16. The stress in the banking sector, which mirrors the stress in the corporate sector, has to be dealt with in order to revive credit growth, says RBI governor Raghuram Rajan in the report. The rise in gross NPA is mainly because of the AQR, said the report. The AQR conducted by the banking regulator found several restructured advances, which were standard in the banks’ books, that needed to be reclassified as non-performing. Since a large proportion of standard restructured advances slipped into the NPA category, the overall stressed assets ratio increased marginally to 11.5% from 11.3% in September. As regards the net NPA of the banks, these have also increased sharply to 4.6% in March 2016, from 2.8% in September 2015. Public sector banks’ net NPA was 6.1%, while the ratio for private sector banks was 4.6%. There was a major difference in the credit and deposit growth of public sector banks as compared with their private sector counterparts. For public sector banks, loans grew at 4% while it was 24.6% for private banks. Deposits of state-run banks grew by 5.2%, while for private banks it was 17.3%.
