Last month RBI in its Financial
Stability Report has clearly indicated that the gross non performing asset
(NPA) ratio of all scheduled commercial banks may escalate from 8.5 per cent in
March 2020 to 12.5 per cent by March 2021 under the baseline set-up. It further
added that the ache may grow further if the macroeconomic environment goes
downhill and in that case the ratio may shoot up to 14.7 per cent.
In my last article on
banking ‘Nim Bullies Bank’s Kismet’
I remained critical about the loath stance of government on Insolvency and
Bankruptcy Code (IBC), which worked well enough in countering the NPA concern
of banks, as a measure to cushion the business environment on the onset of
pandemic. The highly dormant demand side of the economy can never bode well to
the revitalised supply front. Among all reasons the demand side of the economy always
play a very decisive role on producer’s front to predict about their investment
decisions and capacity to cover up the loans.
NPA is a long standing issue
with banks. Post 1991, I mean the liberalisation phase, banks started to
realize an abrupt accumulation of bad loans in its balance sheet as bit more
intervention of externalities left manufacturers at loggerhead in regard of
price fluctuations of commodities in overseas market.
GDP
Growth Rate
Year Growth (%) Annual Change
2009 7.86 4.78%
2008 3.09 -4.57%
2007 7.66 -0.40%
2006 8.06 0.14%
2005 7.92 0.00%
2004 7.92 0.06%
2003 7.86 4.06%
2002 3.80 -1.02%
Data Source: Macrotrends
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The magnificent GDP growth figure during fiscals
2006-’07 and 2007-’08 become a reason of higher volume of loan advances by
banks. But an untoward global financial crisis of 2008 stagnated macros alarmingly
to a low and which reflected to only a meagre 3.09 per cent of GDP growth. And then the whole situation left corporations
in lurch in terms of their repayment capabilities which reflected severely to
the NPA figure of banks. So for long, NPA has been an unavoidable pain with the
banking system.
Now to cope with the pandemic condition and to keep
the economic activity alive the government has roped in on moratorium (EMI
holiday) morale which altogether pushing banks to doldrums. According to the
study of SBI research wing private lenders have 40 per cent (Rs 14.42 lakh
crore) of credit under moratorium and Public Sector Banks (PSBs) have 41 per
cent. Surprisingly 70 per cent of loan book for Small Finance Banks (SFBs)
worth Rs 66,443 crore came under the moratorium out of total outstanding credit
of Rs 94,919 crore. And the study also indicated about the true picture of NPA
numbers, which currently in decline, would surface after second quarter of FY21
when the moratorium relief is poised to end.
Recently banks are very much vocal about not extending moratorium but
changing NPA period from 90 to 180 days. In this period of uncertainty we are
not sure about the normalcy when to come. So it could be a better judgement to
go for a classification on industry so as to pick out those from the group who
are not exactly in condition to have the moratorium relief. It will surely help
banks to restore the lending capacity as well as counter the concern of
interest payment.
Bad loans with a limit of approx 3 per cent is
considered manageable. But compared with other BRICS members India stands at a
very poor position with NPAs approximately at 9.85 per cent. Whereas NPAs
figure of other members hover around 3 per cent with China only have 1.75 per
cent.
Today the RBI in its policy announcement did not
extend the moratorium rather specified the provision of loan restructuring which
has made a good passage for banks and in near future hopefully could produce a
better result.