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Despite foreseeing a possible spike in gross non-performing assets to 4.4 per cent of total advances by March 2014 from 3.42 per cent a year ago, the Reserve Bank of India on Thursday ruled out any systemic risk to the system, saying banks will still be having higher capital adequacy.
“Our stress tests suggest that under a severe stress scenario, the gross NPA ratio of banks may rise to 4.4 per cent by March 2014 but even under such a scenario the system level capital adequacy ratio of banks will be 12.2 per cent only, which is well above the required nine per cent,” RBI said in its annual report. The RBI follows an accounting period of July-June.
"The system wide gross NPAs rose to 3.42% in FY13 from 2.94% in FY12. This is likely to touch 4.4% in FY14 (March '14)," RBI said.
The asset quality of banks has deteriorated on account of slowdown in the economy and emergence of sector-specific issues amid structural bottlenecks in economy.
The ratio of gross NPA to gross advances for commercial banks rose from 2.36% in March 2011 to 3.92% in June 2013, the report noted.
While public sector banks accounted for the disproportionate share in this increase in NPAs, the new private sector banks managed to lower their NPA ratio, the report highlighted.
Out of the total NPAs of 3.42%, public sector banks' NPAs stood at 3.84% in FY13, up from 3.17% in FY12, while that of private banks came down to 1.91% from 2.18% and that of foreign banks rose to 2.97% from 2.68%.
The RBI report said restructured standard assets as a percentage of gross advances rose to 5.83% in FY13 from 4.69% in FY12.
The slippage ratio jumped from 2.55% in FY12 to 2.79 in FY13, the report said.
The central bank further said apart from the deterioration in asset quality, a medium to long-term challenge for the Indian banking sector is the smooth transition to the Basel III framework for improved risk assessment and management.
"Despite the fact that banks appear well-capitalised with an overall CAR at 13.5% as at June 2013, the challenges in implementing Basel III cannot be underestimated," RBI said.
