The moderation of poor loans of industrial banks which began following hitting the peak in March 2018 has continued in spite of the Covid-19 associated anxiety, primarily due to regulatory dispensation, the Reserve Bank of India mentioned.
In the Trends and Progress report published on Tuesday, RBI mentioned schedule industrial banks’ gross non-performing assets (GNPA) ratio declined from 9.1 per cent at finish-March 2019 to 8.2 per cent at finish-March 2020 and additional to 7.5 per cent at finish-September 2020.
The improvement in the asset excellent was driven by reduced slippages which declined to .74 per cent in September 2020 and resolution of a couple of substantial accounts by way of the Insolvency and Bankruptcy Code (IBC). Fresh slippages remained the highest amongst the public sector banks.
“The modest GNPA ratio of 7.5 per cent at end-September 2020 veils the strong undercurrent of slippage,” the report mentioned adding accretion to NPA would have been greater in absence of an asset standstill that was offered by the regulator as a relief to the financial anxiety due to Covid-19 pandemic.
“…the asset quality of the banking system may deteriorate sharply, going forward,” RBI mentioned.
According to the report, the reduction in NPAs through the year was largely driven by create-offs. “NPAs older than four years require 100 per cent provisioning and, therefore, banks may prefer to write them off. In addition, banks voluntarily write-off NPAs in order to clean up their balance sheets, avail tax benefits and optimise the use of capital,” RBI mentioned.
Bank’s capital position also strengthened with capital adequacy ratio of scheduled industrial banks enhanced from 14.3 per cent at finish-March 2019 to 14.7 per cent at finish-March 2020 and additional to 15.8 per cent at finish-September 2020. This was partly aided by recapitalisation of public sector banks and capital raising from the industry by each public and private sector banks.
Net income of SCBs also turned about in 2019-20 following losses in the prior two years, RBI observed. In the very first half of 2020-21 the economic overall performance was shored up by the moratorium, standstill in asset classification and ploughing back of dividends.