Banking system performance improves as NPA declines, credit growth rises

The performance of banking sector has improved as bad loans declined and credit growth accelerated in the last fiscal, according to the Economic Survey 2019. The gross non-performing asset (NPA) ratio of public sector banks (PSBs) decreased from 11.5 per cent to 10.1 per cent between March 2018 and December 2018, the survey noted.

The survey, however, raised concerns over liquidity conditions as financial flows to the economy were constrained due to decline in the amount of equity finance raised from capital markets and stress in the NBFC sector.

"In 2018-19, liquidity conditions were comfortable till August 2018 but has been systematically tight since September 2018. Liquidity situation, on average, moved in the deficit zone in the last two quarters of 2018-19 as well as in first quarter of 2019-20," said Finance Minister Nirmala Sitharaman while presenting the Economic Survey 2018-19 in the Parliament on Thursday.

Capital mobilised through public equity issuance declined by 81 per cent in 2018-19. Credit growth rate y-o-y of the NBFCs have declined from 30 per cent in March 2018 to 9 per cent in March 2019, the survey showed.

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The monetary policy witnessed a u-turn over the last year, with the benchmark policy rate was first hiked by 50 basis points (bps) and later reduced by 75 bps due to weaker-than-anticipated inflation, growth slowdown and softer international monetary conditions, said Sitharaman.

Sitharaman said the ecosystem for insolvency and bankruptcy is getting systematically built out. "It has already led to recovery and resolution of significant amount of distressed assets as well as palpably improved business culture."

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As on March 31, 2018, the total stressed assets pool reached about Rs 10.6 lakh crore for PSBs and Rs 12-13 lakh crore for the overall banking system. Adding to it, as on February 28, 2019, 6,079 cases involving a total amount of Rs 2.84 lakh crores have been withdrawn before admission under provisions of Insolvency and Bankruptcy Code (IBC).

"Further, as per RBI reports, Rs 50,000 crore has been received by banks from previously non-performing accounts. RBI also reports that additional Rs 50,000 crore has been "upgraded" from non-standard to standard assets. All these show behavioural change for the wider lending ecosystem even before entering the IBC process," Sitharaman said in the Parliament.

Edited by Chitranjan Kumar