Health of Indian banks worsened in past six months, cautions RBI

With stressed assets continuing to rise and expected to get worse, the Reserve Bank of India (RBI) has cautioned that risks to the banking system have increased over the last six months, but added that there are no systemic risks at the moment.

"The banking stability indicator shows that risks to the banking sector have increased since June 2013," the central bank said in its half-yearly Financial Stability Report released on Monday.

The indicator combines the impact on all major risk dimensions, said the RBI, which has carried out multiple tests before coming to this conclusion. "The strain on asset quality continues to be a major concern," the report said.

With the present conditions continuing, the gross non-performing assets (NPAs) in the system will rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013, or about Rs 2.29 trillion from Rs 1.67 trillion a year earlier, it said.

The amount of recast loans touched an all-time high of 4 trillion or 10.2 per cent of the overall advances as of September 2013, the report added.



However, the RBI expects some positives in the second half of the next fiscal and is estimating gross NPAs to improve to 4.4 per cent by March 2015. "In case the economic conditions deteriorate, the same number will be 7 per cent by March 2015," the RBI warned.

The state-run banks will be the worst-affected, the report said, pegging the gross NPAs for public sector banks at 4.9 per cent by March 2015. It projected the gross NPAs for private banks at 2.7 per cent in the same period.

If the restructured assets are added, the total stressed advances ratio will rise to 10.2 per cent as of September 2013 from the 9.2 per cent in March 2013, the RBI said.