The
Reserve Bank of India (RBI) declares the Financial Stability Report
(FSR) twice a year. The FSR for June 2017 was declared late last week.
Up
until a few years back, the FSR was one among the many documents
published by the RBI during the course of the year. Only serious banking
correspondents and analysts followed it. Over the years, as the bad
loans problem of banks has gone from bad to worse, the importance of the
FSR has gone up and it is now followed by more people than it was in
the past. This is because, it is in the FSR that
the RBI declares the latest ratio of bad loans for banks.
And how does this latest scene look? Not too good, it must be said.
As
of March 2017, the gross non-performing advances ratio or the bad loans
ratio for banks stood at 9.6 per cent. This basically means that for
every Rs 100 of loans lent by banks, Rs 9.6 was not being repaid by the
borrowers. A loan is categorised as a non-performing advance once the
repayment from the borrower has been due for 90 days or more.
In
comparison, the gross non-performing advances ratio had stood at 9.2
per cent in September 2016. Over a period of six months, the ratio has
jumped by 40 basis points. One basis point is one hundredth of a
percentage.
Given
that nearly one-tenth of the bank loans have been defaulted on, it is
safe to say that Indian banks on the whole are in a generally precarious
position. The situation becomes even more bleak if we look at the
government owned public sector banks.
Take
a look at Figure 1. The blue part of the bars essentially shows the bad
loans ratio over the years. For public sector banks (shown as PSBs in
the Figure), it currently stands somewhere around 12.5 per cent ((I
wonder why the RBI has not given a precise figure for this), having
jumped from around 10 per cent, in March 2016. It was at 11.8 per cent
as on September 30, 2016.
 |
The
situation gets even worse when we look at the loans given by banks to
the industry sector. Take a look at Figure 2. The left part of the
figure shows the bad loans ratio for industry.
 |
As
on March 31, 2017, the gross non-performing advances ratio or the bad
loans ratio for public sector banks for loans given to industry, stood
at 22.3 per cent. This basically means that out of every Rs 100 loans
given by public sector banks to the industry, Rs 22.3 has been defaulted
on. In comparison, the figure for private sector banks stood at 6.6 per
cent. For foreign banks, it was at 6.1 per
cent.
As of March 31, 2017, lending to industry formed around 38 per cent of the total outstanding loans of banks.
How
were things for public sector banks on this front, as on March 31,
2016? The gross non-performing advances ratio for loans given to
industry was at around 15 per cent for public sector banks. It has
increased dramatically since then by over 700 basis points.
What has changed between March 2016 and March 2017? The only possible explanation for this massive increase in bad loans of public sector banks
is that the banks have had these bad loans for a while. It is only now
that they have started recognising these bad loans as bad loans.
While
this is a good thing, the trouble is that nobody knows where this is
likely to end. For instance, this is what the RBI said in the June 2016
Financial Stability Report: "Under the baseline scenario, the gross
non-performing advances ratio may rise to 8.5 per cent by March 2017
from 7.6 per cent in March 2016. If the macro situation deteriorates in
the future, the gross non-performing
advances ratio may increase further to 9.3 per cent by March 2017." The real figure came in at 9.6 per cent.
In the latest Financial Stability Report, the RBI says: "The
macro stress test indicates that under the baseline scenario, GNPAs of
SCBs may rise from 9.6 per cent in March 2017 to 10.2 per cent by March
2018... However, if the macroeconomic conditions deteriorate, the gross
non-performing assets ratio may increase further under such
consequential stress scenarios."
Also,
it is worth pointing out that the large borrowers are responsible for
the bulk of the mess. The RBI defines a large borrower as anyone who has
loan of Rs 5 crore or moe. These large borrowers accounted for 56 per
cent of lending and 86.5 per cent of bad loans. This is clear from
Figure 3.
 |
When
it comes to the hundred largest borrowers they accounted for 15.2 per
cent of the loans and 25.6 per cent of the bad loans. Due to various
reasons over the years, banks have been unable to recover these loans.
It
remains to be seen whether they can do a better job of recovering loans
from the largest borrowers in the days to come. We haven't seen the
last of this issue yet.
No comments:
Post a Comment