To free up capital, give lending a boost
With the improvement in their balance sheets, the banks are now in a position to scale up advances and support the growing credit appetite of a recuperating economy.
Lenders are planning to approach the Reserve Bank of India (RBI) to relax norms and confine provisioning requirements to only non-performing assets (NPAs), banking sources told FE.
Any easing of provisioning norms would free up capital for banks, who would be able to use it to further boost lending at a time when credit demand has been growing at a rapid pace.
At present, standard assets, too, require nominal provisioning. For instance, loans for agriculture, housing (individual) and micro and small enterprises attract a provisioning of 0.25%, while credit to commercial realty requires a 1% provisioning. Advances that have been restructured and classified as standard in sync with the RBI’s norms for areas affected by natural calamities, require a provisioning of 5%.
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Given the massive size of standard assets in the banking system, even nominal provisioning requirements lock up a large amount of capital, bankers said.
“Lenders under the aegis of the Indian Banks’ Association (IBA) are likely to urge the RBI to review the provisioning requirement for non-NPA assets,” said a senior banker. Of course, at the moment, there is no demand for any relaxation on provisioning against NPAs.
At present, secured substandard assets (NPAs up to one year) attract a provisioning of 15%, while for doubtful assets (NPAs for over one year), it’s 25-40% in the first three years. Beyond that, 100% provisioning has to be made.
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Gross NPA ratio of banks—both public and private—dropped to a six-year low of 5.9% in March 2022, while net NPA eased to 1.7%. Public-sector banks, which have accounted for the largest chunk of gross bad loans, saw their gross NPA ratio easing substantially from 14.6% as of March 2018 to 7.4% as of March 2022, while the net NPA ratio declined to 2% from 8% during this period. The ratio went down further this fiscal.
With the improvement in their balance sheets, the banks are now in a position to scale up advances and support the growing credit appetite of a recuperating economy.
Gross bank credit has been steadily rising this fiscal and the growth remained impressive at 17.9% in October from a year before; non-food credit growth was as high as 18.3%. The credit growth is likely to be in double-digit for FY23, according to CARE Ratings.
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