The Reserve Bank of India (RBI), in its recently released ‘Financial Stability Report’ (FSR), has estimated that the Gross Non-performing Assets (GNPAs) of banks will most likely rise to nearly 10% by September 2020. While the central bank has attributed this to the economic slowdown and external factors, it claimed that the banks are becoming resilient.
The rise in bad loans despite massive portions being written off by banks for cleaning up their books emerges to be a larger concern.
According to the half-yearly FSR, the gross NPAs of scheduled commercial banks may increase from 9.3% in September 2019 to 9.9% by September 2020. This is in contradiction with the RBI’s stability report in June that predicted the figure would be 9.0% by March 2020, while the figure was estimated at 9.3% in March 2019. The estimated increase in the bad loans, RBI states would be “primarily due to change in macroeconomic scenario, marginal increase in slippages and the denominator effect of declining credit growth”.
For the last one decade, the banking regulator has been releasing two financial stability reports every year.
While the GNPAs have remained more or less same at 9.3% between March and September, it came at a cost of public sector and private sector banks wrote off Rs 80,893 crore between April 1 and September 30 this year, according to data from the RBI.
Furthermore, in the last Parliament Winter Session, the central government, citing the RBI data, has revealed that public sector banks had written off bad loans or NPAs worth Rs 47,658 crore, Rs 56,847 crore, Rs 79,048 crore, Rs 1,24,275 crore and Rs 1,86,632 crore during financial years 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19, respectively.
These write-offs are in accordance to an RBI directive which asked the scheduled commercial banks to come clear on the amount to be prudentially written off and set the accounts right. Simply put, ‘Write off’ means that the unreturned bank loans are put in the category of uncollectible debt.
The RBI report revealed that the “scheduled commercial banks credit growth remained subdued at 8.7% year-on-year (y-o-y) in September 2019, though Private Sector Banks (PVBs) registered double digit credit growth of 16.5%.”
On December 26, rating agency ICRA stated that bank credit is expected to decelerate sharply to 6.5-7.0% during 2019-20 from 13.3% during 2018-19. The agency attributed the credit decline on account of limited incremental credit growth during the financial year so far.
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