The elongated economic slowdown has taken its toll on asset quality of banks. More worrisome part is about 50% rise in doubtful assets, the loans which unpaid for 18 months, at Rs 90,000 crore at end of March 2013 from Rs 61,700 crore a year ago.
Reserve Bank of India in its report on trend and progress of banking (2012-13) said there were signs of a deepening deterioration within NPAs with an increase in the proportion of “doubtful” loan assets.
The increased shift of loan assets towards the “doubtful” category was most prominent for the SBI Group and nationalised banks, RBI said.
Loans which remain unpaid for 90-days (three quarters) are treated as sub-standard loans. Later if the dues remain for 18 months, such accounts are termed as “doubtful”.
This category of NPAs work as drag on banks in two ways. One, they have to make much higher provisions (around 50% of exposure) and second, the prospects of recovery are low.
Vibha Batra, senior vice president, at rating agency ICRA said given the sharp economic slowdown and liquidity strains, the shift is next category (doubtful) category is obvious.
The gross NPA ratio at the aggregate level stood at 3.6% at end-March 2013 up from 3.1% at end-March 2012. The deterioration in asset quality was most perceptible for the SBI Group with its NPA ratio reaching a high of 5% at end-March 2013.
With the gross NPA ratio reaching about 3.6% by end-March 2013, the nationalised banks were positioned next to the SBI Group.
The asset quality of banks is an important indicator of their financial health; it also reflects the efficacy of their credit risk management and recovery environment, RBI said.
The asset quality of the banking system deteriorated significantly during the year and there was an increase in the total stressed assets in the banking system (that is, NPAs plus restructured assets).
Banks need to follow the steps put in place by the Reserve Bank and the Government of India for resolution and recovery of bad loans. They also must strengthen their due diligence, credit appraisal and post sanction loan monitoring systems to minimise and mitigate the problems of increasing NPAs, RBI added.
