HYDERABAD: The progress of India’s legacy bad loans is turning out to be a case of neither fish nor fowl. On Friday, RBI’s Financial Stability Report revealed banks’ gross non-performing assets may increase to 9.9% by September 2020 from 9.1% in September 2019. The latest prediction comes just days after the central bank’s annual data handout on Indian banks showcased the improving health of banks with NPAs remaining stable at 9.1% in September, after rising for seven consecutive years.
That said, Friday’s forecast about rising NPAs isn’t conclusive but based on RBI’s periodic macro-stress tests, which are essentially simulations about banks’ performance under hypothetical unfavourable scenarios. So, under RBI’s baseline scenario (changes in macroeconomic scenario, marginal increase in slippages and the denominator effect of declining credit growth), state-run banks’ bad loans may rise to 13.2% in September 2020 from 12.7% in September 2019. Private banks’ NPAs could rise to 4.2% from 3.9%, RBI said.
Markets are unlikely to shrug off the above estimates considering the danger lurking around potential NBFC defaults and real estate companies. Although RBI confirmed that India’s financial system remains stable notwithstanding weakening domestic growth, it underscored the rising defaults among 310 real estate-related firms this fiscal, signalling increasing stress.
“The analysis of 310 real estate related obligors gives evidence of increased stress although the aggregate exposure to the sample firms continued to increase, implying availability of credit,” RBI said. PSBs’ exposure with regard to impairment is large, it observed. Meanwhile, credit slowed from 13.2% in March to 8.7% in September, evidently due to an across-the-board dip. PSBs saw the sharpest decline with credit offtake decelerating to 4.8% in September from 9.6% in March, while private banks’ credit growth moderated to 16.5% from 21%.
Realty firms could pull down banks
RBI tracked the performance of 310 real estate firms since 2016. The study showed rise in loan impairment levels in their exposure across financial institutions