Banks’ bad loans to double by September, warns RBI

'Without capital infusion, reserves of 4 banks may dip below danger level'

Banks’ bad loans to double by September, warns RBI

Large borrowers continue to corner half of total bank credit, says RBI. Reuters file

Sandeep Dikshit

Tribune News Service

New Delhi, January 11

Bad loans of Indian banks may double by September this year despite a slight improvement in the gross non-performing assets (GNPA) during the Covid era, according to a RBI report released on Monday.

Four banks may fail to meet the minimum capital level by September 2021 if there is no resuscitation by the stakeholders, it warned.

The warning came on a day the RBI cancelled the licence of Vasantdada Nagari Sahakari Bank. The Maharashtra-headquartered bank will be unable to pay its present depositors, said the RBI.

Stress tests by the RBI’s Financial Stability and Development Council showed that the GNPA ratio of all banks may nearly double from the current 7.5% to a minimum of 13.5% and a maximum of 14.8%.

The Government may have to undertake phase wise capital infusion in public sector banks (PSBs) as their GNPA ratio will deteriorate from 9.7% in September 2020 to over 17% in the worst-case scenario.

Most banks have sufficient capital cushion, even in the severe stress scenario. But at the individual level, the capital buffers of several banks may deplete below the regulatory minimum. The RBI report did not identify the four banks which might suffer a precipitous drop in their reserves but advised mitigating actions, including raising money from the market.

Private venture banks (PVB) and foreign banks (FBs) will fare slightly better but will see a considerable rise in their GNPA ratio. For PVBs, the GNP ratio is predicted to rise from 4.6% to a band of 7.9% - 8.8% and for FBs from 2.5% in September 2020 to a band of 5.4% - 6.5% by September 2021.

The RBI said this was not the final word because considering the uncertainty regarding the unfolding economic outlook, the projected ratios are susceptible to change.

The RBI regretted that credit concentration has continued to persist. The top 100 large borrowers accounted for 17 per cent and 33.7 per cent of banks’ gross advances and large borrower loans, respectively. The share of large borrowers in the aggregate loan portfolios and GNPAs of banks sustained its downward trajectory, declining to 50.5 per cent and 73.5 per cent, respectively. However, foreign banks recorded a marginal increase in the GNPA ratio of large borrowers.

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