Reserve Bank of India expects bad loans in the system to fall by March, suggesting that the stress Indian lenders have been facing will start to ease after three years.
The gross non-performing ratio of Indian banking system will drop to 10.3 percent by March, according to the central bank’s latest Financial Stability Report. That compares with 10.8 percent in September.
The estimate is based on a baseline scenario which assumes that the current economic situation will continue. To be sure, the RBI in its last installment of the report in July had estimated the gross bad loans to rise to 12.9 percent by March.
Industry-wide bad loans have more than doubled to over Rs 10 lakh crore since the RBI started its asset quality review in October 2015, leading to a slowdown in credit growth as banks faced severe capital crunch. Public sector banks were the worst-hit, forcing the Narendra Modi government to infuse around Rs 3 lakh crore since 2015.
The RBI, in the baseline case, expects the gross NPA (non-performing asset) ratio for state-owned banks to fall to 14.6 percent by March 2019 from 14.8 percent in September. The reading was at 15.6 percent in March 2018. Private banks’ gross bad loans could decline to 3.3 percent by the end of this financial year compared with 3.8 percent in September, it said.