- The gross non-performing asset ratio (GNPA) of commercial banks improved to 10.8% in September from 11.5% in March and is set to improve further to 10.3%, the Reserve Bank of India (RBI) said in its Financial Stability Report.
- This was the first half yearly decline in the ratio since September 2015.
- After a prolonged period of stress, the banking sector appears to be on course to recovery as the load of impaired assets recedes; the first half-yearly decline in gross NPA ratio since September 2015 and improving provision coverage ratio, being positive signals.
- Stress test results suggest further improvement in NPA ratio, though its current level remains still high for comfort.
- The net NPA ratio also fell to 5.3% in September 2018 as against 6.2% in March 2018, RBI
- GNPAs of state-run banks improved to 14.8% in September 2018 from 15.2% in March 2018, while private sector banks’ gross NPAs fell to 3.8% in September 2018 from 4% in March 2018.
- Under the baseline scenario, the GNPA ratio of all banks may come down to 10.3% by March 2019 from 10.8% in September 2018, the report.
- The ratio of restructured standard advances steadily declined in September 2018 to 0.5% following the withdrawal of various restructuring schemes in February 2018.
- While asset quality improved, loan loss ratio of banks also increased to 51%.
- The capital adequacy ratio (CAR) of state-run banks however declined from 11.7% to 11.3%.
- The Insolvency and Bankruptcy Code (IBC) will strengthen credit discipline.
- A time-bound resolution of impaired assets will go a long way in unclogging the credit pipeline thus improving the allocative efficiency in the economy.
- The shift in credit intermediation from banks to non-banks has given the corporate sector a diverse choice of finance instruments but added non banking finance companies need to be more prudent on risk-taking.
- There is a need to rebalance excessive credit growth, especially the one funded by short-term liabilities.
- The high credit growth is “not stability enhancing.
- The framework for oversight of financial conglomerates also requires closer attention
- The slowdown in GDP growth to 7.1% is slower than expected, but pointed out to an uptick in gross fixed capital formation along with the dip in crude oil prices as a positive for sustained growth going forward.
- Globally, the threat of trade war, which would have weakened growth prospects, has softened.
