Nearly one-fourth of banks loan book has turned sour and worst is not over year, warned an according to Financial Stability Report released by the Reserve Bank of India released on Tuesday. The bi-annual report by RBI further warned that lower profits could prevent banks from building cushion against unexpected losses or shocks.
Only two PSU banks – Vijaya Bank and Indian Bank – had reported profit in the fourth quarter due to provisions for bad loans while rest of banks reported losses with Punjab National bank reporting highest loss of Rs 13417 crore due to Nirav Modi scam.
Bad loans of 11 PSU banks under prompt corrective action may worsen from 21% in March 2018 to 22.3% and six PSBs facing PCA may not be able meet required minimum capital requirement as per te Basel norms of 9%, RBI report said.
The report also pointed out that earnings of the 14 weak banks have been worsening since September 2016 and “more efforts will be needed to improve their resilience.”
The stressed assets- gross non performing loans and restructured loans – together stood at 24.8% in March 2018 as against 23.9% in September 2017.
The RBI report said that stressed advances ratio of sub sectors such as gems and jewellery, infrastructure , paper and paper products, cement and cement products and engineering registered increase in March 2018 from their levels in September 2017. Top 100 large borrowers accounted for 15.2% of gross advances and 26% of GNPAs of SCBs
The report said, “Weak profitability of commercial banks is a concern as low profits can prevent banks from building cushions against unexpected losses and make them vulnerable to adverse shocks.”