The Reserve Bank has said gross non-performing assets in the system shot up to 10.2 per cent as of the September quarter, primarily led by private sector lenders, and has warned that the situation will only aggravate from there, "elevating" the systemic risks.
In the half-yearly Financial Stability Report (FSR) put out late this evening, the central bank, however, said the financial system remains "stable" overall though it has pegged the bad loans spiking to 10.8 per cent by the March quarter and to 11.1 per cent by September 2018.
"The banking stability indicator (BSI) shows that the risks remain at an elevated level weighed down by further asset quality deterioration," the FSR notes.
Overall, the stressed assets, including restructured loans and dud loans increased marginally to 12.2 per cent during the same period from 12.1 per cent. The state-run banks' GNPA shot by 100 bps to 13.5 per cent while the same for their private sector peers jumped to 3.80 per cent.
Incidently, the report says private sector lenders, considered more prudent are the ones reporting the most stress reporting a whopping 40.8 per cent spike in their GNPAs as against 17 per cent by the state-run ones whose lazy banking has been blamed primarily for the mess in the system.
The overall gross non-performing assets or GNPAs in the system have grown to 10.2 per cent as of the September quarter from 9.6 per cent six months earlier, when the last FSR was released, it said.
It can be noted that all the top private sector lenders, including ICICI Bank, Axis Bank and Yes Bank, and even HDFC Bank, have been found to have under-reported their dud assets in the recent RBI" supervision, results of which were recognised over the first two quarters of the fiscal.
In what should cause more concern for everyone, a baseline scenario of the Reserve Bank says the GNPAs ratio will slip further to 10.8 per cent in the March quarter and 11.1 per cent by September 2018.
In the foreword to the report, deputy governor NS Vishwanathan warns that overall risks to the system arising from asset quality concerns "continue to persist".
He warns that though supporting factors exist on external front like increased consumption, investment and geographical spread, the economy will be able to take advantage of the "tailwinds" only if the banking sector comes back into "good shape".
The central bank notes the Insolvency and Bankruptcy Code regime is "showing significant progress in dealing with financial and operational creditors to insolvent companies in a market determined and time bound manner".
Corporate governance at the state-run lenders is "key" to ensuring the success of government's Rs 2.1 trillion bank recapitalisation programme, it says.
On the growth front, the report acknowledges that there has been an uptick after GST and note-ban "hiccups", but warns that corporate deleveraging and muted credit growth by state-run banks that account for 70 per cent of the system pose a "downside risks".
Investment climate remains "challenging" as seen from the decline in investment proposals, it says, noting that events like the sovereign rating upgrade from Moody's, progress on stalled projects and efforts to improve quality of state expenditure can help revive the inflows.
"The decisive recapitalisation move can provide the much needed fillip to private investment going forward," Vishwanathan notes.
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