Bad Loans May Rise To 6.9% Under Severe Stress Scenario: Government

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New Delhi: Attributing mounting bad loans in the banking system to economic sluggishness, the Finance Ministry has said lenders’ gross non-performing assets (GNPAs) could soar to 6.9 per cent by March 2017 in a “severe stress scenario”.

The gross NPAs of the scheduled commercial banks, which were 5.14 per cent at the end of September 2015, may rise to 5.4 per cent by September 2016, it said quoting a Reserve Bank of India report.

“If the macro economic conditions deteriorate, the GNPA ratio may increase further, and it could rise to around 6.9 per cent by March 2017 under a severe stress scenario,” the Finance Ministry said in its 2015-16 Annual Report.

The capital to risk asset ratio (CRAR), an indicator of banks’ capital adequacy, could decline to 10.4 per cent by March 2017, from 12.7 per cent as of September 2015, it said.

According to the report, the main reasons for increase in the banks’ NPAs include sluggishness in domestic growth in the recent past, slowdown in recovery in the global economy and continuing uncertainty in the global markets, leading to lower exports of various products like textiles, engineering goods, leather and gems.

Besides external factors, it said, ban in mining projects, delay in clearance of projects in the power and steel sectors, volatility in prices of raw material and shortage of power have impacted operations in infrastructure sectors, which were aggressively funded by the banks in the past.

Infrastructure sector lending had a major bearing on the PSU banks, the report said, adding that the loan requirements are such that “only big public sector banks could assume exposure under the consortium arrangements”.

In order to address the NPA situation, the report said the government has taken sector-specific measures in identified areas like road, steel, power and textiles.

It is also setting up six new debt recovery tribunals to facilitate recovery of bad loans.

Banks’ gross NPAs had steadily declined from 12.04 per cent in 2000-01 to 2.45 per cent in 2008-09. However, the upward trend was noticed since 2012-13.

According to the report, gross NPAs rose from 3.42 per cent at the end of March 2013 to 4.11 per cent in March 2014, and further to 5.14 per cent in September 2015.