Private sector banks registered a 40.8% year-on-year increase in gross non-performing assets as of September 30, 2017, according to latest data released by the Reserve Bank of India (RBI).
In comparison, gross NPAs at public sector banks (PSBs) rose by 17% over the corresponding period, while industrywide gross NPAs increased 18.5%.
The gross NPA ratio of the banking sector increased to 10.2% in September, from 9.6% in March, while net NPA ratio rose to 5.7%, from 5.5%. However, the total net NPA ratio of private sector banks as on September 30, at 2%, is much lower than the 5.7% for PSBs.
In its Financial Stability Report released on Thursday, the RBI said an analysis of the slippage ratio of 27 banks (accounting for about 87% of the total assets of the banking system), the median as well as the tails were showing signs of moderation. However, banks needed to increase their provision coverage ratio.
“While assessing the risk absorbing capacity of banks, it was found that all PSBs and some PVBs had a negative provisioning gap assuming a benchmark provision coverage at 50%,” the central bank said.
The macro stress test for credit risk indicates that under the baseline macro scenario, the GNPA ratio may increase to 10.8% by March 2018 and further to 11.1% by September 2018, RBI said.
The report observed that the ongoing deleveraging in the heavily indebted parts of the corporate sector and muted credit growth in public sector banks pose a risk to growth. Subdued credit, which may also be a consequence of thin capital buffers of PSBs, leads to lower investments in the economy, it said.
Credit growth in major sectors as well as industries has witnessed a decline over the past two years.
However, there was a silver lining. The RBI noted that the number and cost of stalled projects reported in the second quarter of the current fiscal had declined from the first quarter.
“The positive signals of improvement – the decline in number and cost of stalled projects, the efforts to improve the quality of government expenditure, ease of doing business ranking, sovereign rating upgrade by Moody’s and the bank recapitalisation announcement are expected to provide a significant fillip to investment sentiment in the coming quarters,” the RBI added in the report.