Reserve Bank says banking system in India is weaker because of rising bad loans as growth has fallen below potential and companies are reeling under obstacles to project clearances
Mumbai: State-run banks and foreign banks were hit by bad loans as their non-performing assets (NPAs) rose in 2011-12, reports PTI quoting the Reserve Bank of India (RBI).
Led by state-run banks and foreign lenders, "the asset quality of the banking system deteriorated significantly in FY12 after a period of sustained improvement," says RBI report on 'Trend and Progress of Banking in 2011-12' released over the weekend.
Non-performing assets of public sector banks rose to Rs1.1 lakh crore in 2012 from Rs52,807 crore in 2003, data from the Reserve Bank of India showed.
The non-performing assets of country's largest lender State Bank of India (SBI) and its associates in 2012 (as of 31st March) were at Rs45,695 crore from Rs16,958 crore in 2003, while that of nationalised banks' were at Rs65,969 crore versus Rs35,849 crore.
Though the report states that there is no systemic risk to the banking system as the fundamentals are robust, the Reserve Bank says the banking system is weaker because of rising bad loans as growth has fallen below potential and companies are reeling under obstacles to project clearances.
"Inadequate credit appraisal during the boom period of 2003-07, coupled with the adverse economic situation in the domestic as well as the external fronts, have resulted in the current increase in NPAs," says the report.
The fall in asset quality was more visible among public sector banks, which saw their bad loans rise on both priority and non-priority loans.
In FY12, gross NPAs of state-run banks rose to 3.3%, higher than the 3.1% at the system-level.
Foreign banks also saw a rise in NPAs, but the report did not specify how much was their NPA level.
But the RBI report said that state-run and foreign lenders' recovery performance was better than their private sector counterparts which relied more on write-offs than recovery.
The report said among banks, new private sector lenders relied more on writing off NPAs as a measure to contain their NPA levels. Loans worth Rs1,800 crore were written off by new private sector banks in FY12, according to the report.
To strengthen the NPA management framework of the banks, the RBI its in 2012-13 Monetary Policy has advised the banks to put in place a robust mechanism for early detection of signs of distress, and implement measures to preserve the economic value of assets.
To arrest the steep rise in bad loans, the RBI in the report has directed banks to share information on credit exposure among themselves on real-time basis and warned of punitive measures in case of failures, including penalties.
The directive comes at a time when banks are seeing a surge in corporate debt restructuring cases and bad loans.
The RBI on 30th October had asked banks to set aside more money for every standard restructured loan - from 2% in the past to 2.75%.
So far in 2012, the number of loan recasts rose to 101 cases, according to information available with the corporate debt restructuring (CDR) cell.
The CDR cases include the Rs31,000 crore of Air India and Rs1.9 lakh crore of state-run discoms.
Till September, banks restructured loans worth Rs2.5 lakh crore, out of which as much Rs1.6 lakh crore worth loans were restructured under the CDR scheme.
The number of CDR cases since the beginning of this year crossed the century-mark as on 30th September, involving a collective debt amount of close to Rs64,000 crore, as per the data available with the CDR cell of bankers.
Besides, 51 more cases, worth Rs45,000 crore, have been approved for recast at the end of September quarter.
The CDR cell was set in 2001 to help corporates facing financial difficulties due to "factors beyond their control and due to certain internal reasons."
As per the latest data available with the CDR cell, a total of 466 cases, involving total debt of Rs2.46 lakh crore , have been referred to it since its inception.
During the first half of the fiscal, as many as 74 cases worth about Rs40,000 crore were referred to the CDR cell-the highest ever so far.
In the entire last fiscal, there were 87 CDR cases with an aggregate debt of about Rs68,000 crore referred for CDR.