Millennium Post

'No end to NPA woes; banks to see rise in bad loans in current fiscal'

New Delhi: Reserve Bank of India said on Wednesday that banks will witness further deterioration in their non-performing assets (NPAs) or bad loans due to the "economic situation prevailing" in the current fiscal.

As per RBI's Annual Report 2017-18, gross non-performing assets (GNPAs) plus restructured standard advances in the banking system remained elevated at 12.1 per cent of gross advances at end-March 2018.

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, resulting in net losses, it said.

In a pre-emptive response, it said, the RBI allowed banks to spread their MTM losses over four quarters starting from third quarter.

"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 (SCBs) may increase further in 2018-19," it said. The aggregate gross NPAs of SCBs increased primarily as a result of this transparent recognition of stressed assets as NPAs, from Rs 3,23,464 crore, as on March 31, 2015, to Rs 10,35,528 crore, as on March 31, 2018.

With deterioration in asset quality and the progressive implementation of Basel III warranting higher buffers, troubled public sector banks (PSBs) received capital infusions via the issuance of recapitalisation bonds and budgetary support.

"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 remedial action plan so as to prevent further capital erosion," it said.

In order to curb NPAs, RBI also put in place revised and harmonised guidelines for resolution of stressed assets during the year, replacing earlier schemes like Sustainable Structuring of Stressed Assets (S4A scheme), Strategic Debt Restructuring scheme (SDR), Corporate Debt Restructuring (CDR) scheme and Joint Lenders' Forum (JLF).

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