Write-offs in Covid Year Help Banks Reduce Bad Debt: RBI

THE BANKING sector succeeded in improving the quality of assets during the Covid year, the ratio of gross non-performing assets to advances rising from 8.2% at the end of March 2020 to 7.3% at the end of March 2021 – and again to 6.9% at the end of September 2021, according to a new report from the Reserve Bank of India (RBI).

According to the “India Banking Trends and Progress Report 2020-21”, loan cancellations were the main recourse to reduce gross ANP in 2020-21. This improvement is also due to a decrease in slippages, in part due to the end of the classification of assets, he said.

In absolute terms, gross NPA fell to Rs 8,37,771 crore in March 2021 from Rs 8,99,803 crore in March 2020. NPAs worth Rs 4 crore were added during the year while bad debts of Rs 2.08 crore were written off by banks. . Of the total NPAs, Rs 6.16 lakh crore of bad debts were accounted for by public sector banks, according to the report.

The ratio of gross ANP to advances indicates the proportion of loans out of total loans that have not been repaid within the allotted time. Banks normally write off a non-performing asset when all collection measures are exhausted and the chances of collection are low. In April 2020, when Covid hit the economy, the RBI decided to give relief to standard bank accounts with a moratorium on loans between March 1 and May 31 of the same year. The 90-day NPA standard excluded the moratorium period for such accounts. The RBI ended the classification of assets for standard bank accounts, implying that these could not be classified as bad assets after the stipulated 90-day period.


Red flag on asset quality

As bad loans fell through September 2021, the RBI stressed that the quality of banks’ assets could be shaken. In addition, credit growth – at 7.3% as of December 3, 2021 – is moderate, indicating the impact of the pandemic on aggregate demand and the risk aversion of banks in lending to productive sectors of the world. ‘economy.

With the decrease in past due assets, provision requirements also decreased and the net NPA ratio of PSU banks and private banks decreased compared to the previous year. On the contrary, foreign banks have reported growing increases in NPAs and deteriorating asset quality due to the merger of troubled private banks and foreign banks, the RBI said.

In India, most pandemic measures had a well-specified sunset clause, and some ran their course during the year. However, the impact of these transitional measures on the financial health of banks can only be fully explored after the passage of time, the central bank said.

One of the fallout from the pandemic and slowing economic activity is that banks’ credit growth remained subdued in 2020-21, but non-bank financial corporations (NBFCs) have stepped up to fill that gap. In the first half of 2021-2022, although banks’ credit growth edged up, concerns emerged about the quality of NBFCs assets, the RBI said.

Going forward, however, banks would need a higher capital cushion to cope with the challenges of continued stress on borrowers as well as to meet the economy’s potential credit needs, according to the report. Based on the capital situation as of September 30, 2021, all public sector banks and private banks have maintained the capital conservation buffer (CCB) well above the minimum requirement of 2.5%. .

In 2020-2021, the consolidated balance sheet of banks grew, despite the pandemic and the resulting contraction in economic activity. “In 2021-2022 so far, signs of nascent recovery are visible in credit growth. Deposits increased 10.1% at the end of September 2021 from 11.0% a year ago, ”the RBI said.

The central bank said some of the policy measures taken by the RBI in response to the pandemic have reached pre-announced extinction dates of 2021-2022.

Some liquidity measures have been removed as a result, while other regulatory measures have been realigned to avoid prolonged forbearance and financial stability risks while providing targeted support to needy sectors, he said. The realigned measures include the postponement of the implementation of the net stable funding ratio, restrictions on dividend payments by banks and the postponement of the implementation of the last tranche of the capital conservation buffer. Although the opening of a new insolvency proceeding under the IBC was suspended for a year until March 2021, it was one of the main modes of recovery in terms of the amount recovered.

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