Do they really want to solve "bad loan" problem?

Stressed loans of banks have now risen by 15% to $138 billion (approx Rs 8,71,746 crore)  in June 2016, an increase of 15% in just six months, Reuters reported.

Stressed assets is mixture of non-performing assets (NPAs), restructured loans and written off assets. They are realized when a borrower fails to pay its principal amount of loan and interest  for a of 90 days.

Total stressed assets in the Indian commercial banks have risen to 11.5% with public sector banks  leading the strain at 14.5 % as at end-March 2016, Reserve Bank of India (RBI) data show. 

Sectoral distribution of NPAs: 

Industries' gross non-performing assets (GNPA) ratios rose by 11.9% as on March 2016, while stressed advances ratio stood at 19.4%.

Sectors like agriculture, services and retail were below 6% in GNPA with agriculture sector being the minimum. 

Public Sector Banks (PSBs) gross NPAs are highest, at 15.7%, while in infrastructure sector  is at 9%, Agriculture at 6.3%, services at 6.7% and retail sector at 2.2%.

To bring discipline, RBI has tightened the norms for lending to large corporate which will be in effect from financial year 2018. 

Restructured assets: 

RBI said,"During the five years to March 2015, banks have resorted to restructuring of loans in many cases to postpone recognition of non-performance, or what we now call ‘extend and pretend’, rather than using it as a tool to preserve the economic value of the units as intended."

As a result, until 2016 the restructured assets included more than 50% of the stressed assets of all scheduled commercial banks hiding the actual extent of failure of the loan portfolios.

Proportion of these assets was much higher in public sector banks. 

The outstanding balance of these assets declined sharply in 2016 post-AQR (asset quality review), as a major portion of these assets has been classified as NPA post AQR reflecting their true quality, stated RBI. 

Net NPAs: 

There has been consistent rise in net NPAs under banking sector, especially PSBs which has hampered their earnings. 

Higher net NPAs show-cases lower provision coverage ratio which should progressively improve as the strain on profitability eases, said RBI.

Large Borrowers: 

It is also noted that the stress is higher in large borrowers’ accounts.  Under overall credit portfolio, share of industrial advances is around 40%. 

While this is partly explained based on the relatively higher credit intensity of industrial sector, banks have to see the need for proper balance taking into account the risk return trade-off especially in the larger loan segment, RBI added. 

N. S. Vishwanathan, Deputy Governor of RBI said, "If banks continue to remain saddled with huge NPAs for a long time, it would make them risk averse and choke the lending for economic activities in general. "