MUMBAI: Crumbling under the weight of bad loans, India’s banking sector’s risks have sharply increased, warned the RBI on Tuesday.
In its Financial Stability Report, the central bank said gross bad loans of banks jumped from 5.1 per cent in September to 7.6 per cent in March and may cross 9.3 per cent by 2017. Such an increase could de-stabilize the banking industry, whose non-performing loans peaked to an all-time high of E5.8 lakh crore in March.
Outgoing RBI Governor Raghuram Rajan said the banking sector’s stress needs to be dealt with to revive credit growth, which remained in single digits. Credit growth declined from 9.4 per cent in September to 8.8 per cent in March, primarily due to rising toxic loans. Of this, more than 86.4 per cent of bad loans are with large borrowers.
The top 100 borrowers alone accounted for 22.3 per cent of the chunk, a massive jump from 3.4 per cent in September, 2015. State-run banks also held the highest stressed advances ratio and among the major industrial sectors. Owing to bad loans, bank’s asset quality and profitability deteriorated.
If this continues, the state-run bank’s capital adequacy ratio may drop to 10.3 per cent by March 2017, down from 11.6 per cent in March, 2016, while 30 of 50 banks may not be able to meet the norms. “Individually, a large number of banks will not be able to meet the required capital adequacy ratio levels under the extreme scenario,” the report said.
Meanwhile, the FSR noted that the Non Banking Financial Companies (NBFCs) are performing better than banks with an aggregated balance sheet expanding by 15.5 per cent in March, 2016 over last year. However, an analysis of over 2.5 lakh unlisted non-government, non-financial firms revealed that risks due to lower revenue and liquidity pressures still remain.
In a separate report, Morgan Stanley said the recent Brexit may have an adverse impact on India’s growth by up to 60 basis points in a high-stress scenario in the next two years.