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Q. RBI’s financial stability report on NPA’s: Discuss the important aspects of non-performing assets in RBI’s financial stability report of June 2016.
Oct 14, 2016 Related to : GS Paper-3

Ans :

Introduction-

Sometimes ago, Reserve Bank of India has released the financial stability report (FSR) of June 2016.  It is a biannual publication and recently released one is the thirteenth in the series.  The FSR reflects the overall assessment on the stability of India’s financial system and its resilience to risks emanating from global and domestic factors.

Report on NPA’s-

  • In FSR the RBI has warned that gross non-performing advances (NPAs) of banks are likely to hit 9.3% by March 2017 “under a severe stress scenario” from 7.6% in March 2016.
  • The top 100 large borrowers (in terms of outstanding funded amounts) accounted for 27.9% of credit to all large borrowers and 16.2% of the credit of all banks.
  • India has witnessed relentless growth of NPAs by all banks between March 2012 and 2016. State- owned banks are the best-known offenders of NPA’s.
  • Over the last two years, even foreign banks have seen a sharp spike in bad debt growth, while private banks have seen a steady upward creep in the growth of NPAs.
  • Over the last two years, the annual increase of bad loans for all banks has jumped from around 20% per year to nearly 80% in the fiscal year ended March 2016.
  • India’s largest borrowers have gorged on bad debt, even as their share of total loans has dropped marginally in two years.

Ananlysis-

  • In last year March, big borrowers accounted for 72.8% of all bad debt and 58.1% of total borrowing. But by March 2016, their NPA is accounted sharp hike to 86.4%, though their share of borrowings dipped slightly to 58%.
  • The dip in borrowings perhaps reflects growth pessimism and a lack of appetite for funds.
  • The spike in bad debt owes much to stalled projects, stagnant demand, a dip in margins and loss of pricing power.
  • Five important sectors, infrastructure, steel, textiles, power and telecom hold about 61% of total bad loans.

Conclusion-

The RBI’s financial stability report numbers on NPA’s is alarming bell for India’s banking sector as well for whole economy. There are various causes for ever increasing NPA’s in Indian economy. Hence Indian Government, banks and central banks must come together to fight against growing NPA’s and must find suitable solution. Each of these players must take active role in this process and immediately address this issue.


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