Rising NPAs could push CRAR of 20 banks below 9 pc
MUMBAI: The gross non-performing assets (GNPA) of the scheduled commercial banks in India, which has been on a constant rise for some time now, is all set to increase further from 11.6 per cent as of March 2018 to 12.2 per cent by March next year, according to RBI.
This will certainly impact the capital positions of the banks negatively, pushing the banks further to the wall. “Sensitivity analysis indicates that a severe shock to the GNPA ratio could bring down the capital to risk-weighted assets ratio (CRAR) of as many as 20 banks, mostly public sector banks (PSBs), below 9 per cent,” said RBI in a statement.
The gross non-performing assets of public sector banks (PSBs) could worsen further from 21 per cent to 22.3 per cent by March next with six PSBs under the RBIs prompt corrective action (PCA) could experience capital shortfall under the baseline scenario.
However, it is expected that the PCA framework could help mitigate financial stability risks of these banks by arresting the deterioration in the banking sector, so that further capital erosion is restricted and banks are strengthened to resume their normal operations.
Credit growth of SCBs picked up during 2017-18 amidst sluggish deposit growth though the stress in the banking sector continues as gross non-performing advances (GNPA) ratio rises further. Profitability of SCBs declined partly reflecting increased provisioning and this has added pressure on SCBs’ regulatory capital ratios.
The central bank has stated that the capital augmentation plan announced by the government will go a long way in addressing the potential capital shortfall, while also playing a catalytic role in credit growth at healthier banks.