Alarming news for India’s Banking performance and its financials
The Reserve Bank of India (RBI) on Monday came out with an alarming report that the Indian Banks’ Non-Performing Assets (NPA) expected to increase of 13.5 per cent or even escalated 14.8 per cent by September 2021. RBI in its Financial Stability Report (FSR) even said Public Sector Banks’ NPA level may go up to 16.2 per cent. This is alarming news for India’s Banking performance and its financials.
The 119-page FSR paints a gloom report of Indian Banks’ NPA status. BJP leader Subramanian Swamy had already approached Supreme Court last year seeking the need for strict guidelines to banks in disbursing loans to corporates, who are the major NPA creators. The case was listed on February 28, 2020, before the Bench of Justice Ashok Bhushan and was not taken up as Bhushan was on leave that day. According to Swamy’s legal associates, they will seek an early hearing on this serious matter which deteriorates the health of Indian Banking.
According to Swamy’s legal associates, they will seek an early hearing from the Supreme Court on this serious matter which shows the steady deterioration in the health of Indian banks.
As per the Monday’s FSR, Banks’ Gross Non-Performing Assets (GNPA) may rise to 13.5 per cent by September 2021, from 7.5 per cent in September 2020 under the baseline scenario, according to Financial Stability Report (FSR) released by the Reserve Bank of India.
“Macro stress tests incorporating the first advance estimates of gross domestic product (GDP) for 2020-21 released on January 7, 2021, indicate that the GNPA ratio of all SCBs may increase from 7.5 per cent in September 2020 to 13.5 per cent by September 2021 under the baseline scenario; the ratio may escalate to 14.8 per cent under a severe stress scenario. This highlights the need for proactive building up of adequate capital to withstand possible asset quality deterioration,” said RBI in a press release on the FSR published on Monday.
If the macroeconomic environment worsens into a severe stress scenario, the GNPA ratio may escalate to 14.8 per cent, the report said. “The stress tests indicate that the GNPA ratio of all scheduled commercial banks (SCBs) may increase from 7.5 per cent in September 2020 to 13.5 per cent by September 2021 under the baseline scenario,” the FSR report added.
The Report also said that Public Sector Bank’s NPA may shoot up to 16.2 per cent. It must be remembered that Public Sector banks are the victim of corporate loan laundering and non-repayment of loans. Among the bank groups, public sector banks’ (PSBs) GNPA ratio of 9.7 per cent in September 2020 may rise to 16.2 per cent by September 2021 under the baseline scenario, it noted.
The gross non-performing asset (GNPA) ratio of private sector banks (PSBs) and foreign banks (FBs) may increase from 4.6 per cent and 2.5 per cent to 7.9 per cent and 5.4 per cent, respectively, over the same period. In the severe stress scenario, the GNPA ratios of PSBs, PSBs and FBs may rise to 17.6 per cent, 8.8 per cent, and 6.5 per cent, respectively, by September 2021, the report said. “These GNPA projections are indicative of the possible economic impairment latent in banks’ portfolios, with implications for capital planning,” it added.
BJP leader Subramanian Swamy in his petition before the Supreme Court is seeking strict uniform guidelines and a single point of decision making for issuing loans above Rs.500 crores produced a series of study reports that many leading Corporate Houses crossed a total NPA of more than Rs.2 lakh crores in 2016 itself. Swamy’s petition also has the data on the biggest 10 NPA creators starting from Anil Ambani’s Reliance Group and Adani Group. According to Swamy’s legal associates, they will seek an early hearing from the Supreme Court on this serious matter which shows the steady deterioration in the health of Indian Banks.
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