• HDFC
• 06 Sep 2018
• Knowledge Centre

HDFC, Tester

Banks are expected to witness a further deterioration in their non-performing assets (NPAs), owing to the “economic situation prevailing” in the current fiscal. The Reserve Bank of India (RBI) has cautioned.

 

According to a report by a wire agency, the central bank in its Annual Report said that the gross non-performing assets (GNPAs) plus restructured standard advances in the banking system remained elevated at 12.1% of gross advances at end of March 2018. The central bank also said, “Going forward, the stress tests carried out by the Reserve Bank suggest that under the baseline assumption of the current economic situation prevailing, the GNPA ratio of scheduled commercial banks may increase further in 2018-19.”

 

Some Reasons

 

The combined impact of the increase in provisioning against NPAs and mark-to-market (MTM) treasury losses on account of the hardening of yields eroded the profitability of banks. This has resulted in net losses, it stated.

 

Owing to this, the central bank has allowed banks to spread their MTM losses over four quarters, it said. The aggregate gross NPAs of the Scheduled Commercial bank (SCBs) rose mainly from Rs 3, 23, 464cr as on 31st March 2015 to Rs 10, 35, 528cr as on 31st March 2018. This was owing to the method of transparent recognition of stressed assets as NPAs. Because of declining asset quality and the banks readying for the implementation of the Basel III norms, there was a move to bail out ailing public sector banks (PSBs) by capital infusions via the route of the issuance of recapitalization bonds.

 

“The Reserve Bank’s revised prompt corrective action (PCA) framework became effective in April 2017. Eleven PSBs placed under this framework so far have been restricted in their operations, and subjected to a remedial action plan so as to prevent further capital erosion,” the RBI said.

 

Revised Norms

 

In a move to curb NPAs, the central bank has also revised guidelines for the resolution of stressed assets during the year. According to a report in a daily, following earlier schemes will be replaced:

 

• Sustainable Structuring of Stressed Assets (S4A scheme), 
• Strategic Debt Restructuring scheme (SDR), 
• Corporate Debt Restructuring scheme (CDR) and 
• Joint Lenders’ Forum (JLF).

 

“The final guidelines relating to the net stable funding ratio (NSFR) were also issued in May 2018 to prepare the ground for banks to build durable buffers against potential liquidity disruptions,” it said.

 

As per an ICRA report released on 28th August 2018, the gross NPA ratio was at 11.52% as of end of June 2018 as compared to 11.68% at the end of March 2018, while net NPAs came in at 5.92% as on end of June 2018 from 6.27% in March 2018.

 

Total losses posted by the 21 PSBs from April 2018 to June 2018 stood at Rs 16,614.52 cr, led by a monumental loss of Rs 4,875 cr from State Bank of India and Rs 940 cr from Punjab National Bank, according to the daily.

 

Of the 21 banks, only seven have posted a profit in the first quarter of this fiscal (FY19), as against two banks in the fourth quarter of the previous fiscal (FY18). For the quarter ending March 2018, aggregate losses of the 21 banks stood at Rs 62, 641 cr.