Asset quality decreases but pace of bad loan addition comes down: RBI

The Reserve Bank of India believes though the total bad loans in the system have swollen, the pace of the incremental addition has come down. This reflects well for the sector, as it indicates the worst is behind us. “From the September quarter results announced by banks, we have seen that while there has been an incremental percentage of gross and net NPAs (non-performing assets), there has been marginal reduction in restructured advances and slight uptick in overall stressed assets in the banking system. But, the formation of incremental NPA has decelerated,” said RBI Deputy Governor S S Mundra at the bi-monthly monetary policy.

 

At the end of the quarter ended September, Gross NPAs (of 41 banks) increased to Rs 6,99,854 crore, compared with Rs 6,48,890 crore in the quarter ended June. However, the pace of additions has come down as the quarter-on-quarter addition between June and September was Rs 50,964 crore. In the previous quarter, between March and June, the amount of bad loans added was higher at Rs 58,330 crore.

Mundra said another positive that has emerged is the provision coverage ratio in the system has slightly improved compared with the previous year and recoveries have been better at a time when write-offs have reduced to some extent.

Deputy Governor N S Vishwanathan said the recent amendments to rules on restructuring schemes such as 5/25 will aid recoveries and resolution and will also help in reducing accretion to NPAs. The central bank had earlier directed lenders that the last date for clean-up of the balance sheet stands at March 2017 and it was unlikely to be shifted. 

As a result of demonetisation, bankers believe there could be some pressure on asset quality, especially accounts, but this will be transitory in nature and won’t have a significant impact on NPAs in the banking system.

"Due to demonetisation, there has been a severe disruption in economic activity. However, this is unlikely to push NPAs up. Existing NPA accounts as well as the performing accounts have seen clients making payments and repayments for the dues. SBI continues to focus on recoveries post the demonetisation period," said Arundhati Bhattacharya, chairman, State Bank of India.