Bad loans of banks may increase by 6 percentage points to 14.7% this fiscal: RBI

Bad loans of banks may increase by 6 percentage points to 14.7% this fiscal: RBI

Mangalore Today News Network

New Delhi, Jul 24, 2020: The total bad loans of the Indian banks is likely to rise by six percentage points to 14.7 per cent by the end of the current financial year, the Reserve Bank of India Friday warned, citing a worrying trend of bad loans accumulation with small borrowers of late.

 

The report comes days after RBI Governor Shaktikanta Das underlined the need for further recapitalization of PSU banks to increase their systemic resilience amid Covid-19 stress.

Macro stress tests for credit risk indicate that the gross NPA ratio of all banks may increase from 8.5 per cent in March 2020 to 12.5 per cent March 2021 under the baseline scenario. If the macroeconomic environment worsens further, the ratio may escalate to 14.7 per cent under very severe stress,” the RBI said in its Financial Stability Report.

It said the public sector banks’ gross bad loans ratio of 11.3 per cent at the end of March may increase to 15.2 per cent by March 2021 under the baseline scenario. Private banks may see an increase from 4.2 per cent to 7.3 per cent.

It said the stress test results indicate that five banks may fail to meet the minimum capital level by March 2021 in a very severe stress scenario.

“This, however, does not take into account the mergers or any further recapitalisation, which can further increase systemic resilience.”

“Large borrowers (with exposure of over Rs 5 crore) accounted for 51.3 per cent and 78.3 per cent of the aggregate loan portfolio and GNPAs, respectively, of commercial banks in March 2020. Both these shares have declined since March 2018, implying that, on an incremental basis, credit and NPA accretions are occurring in the small borrower category in the recent period,” the report said.

At present, a moratorium provided on loan repayments for businesses and individuals due to Covid-19 is providing some relief for struggling businesses, but lenders may find a wave of loans turning into bad debt after that relief ends in August, the RBI cautioned.


courtesy:DHNS