DR Ambedkar IAS Academy

NPAs increasing, IBA tells panel

With non-performing assets (NPA) increasing and banks’ capital positions not improving despite the additional capital infused by the government in public sector banks, the Indian Banks’ Association (IBA) told the Standing Committee on Finance that one way forward could be an extension of the deadline by which Indian banks have to comply with the Basel III norms.

The data provided by the IBA on Monday showed that the ratio of gross NPAs to gross advances — basically a metric of bad loans — had grown from 2.36% by March 2011 to 4.11% in March 2014, and grew further to 10.41% by December 2017, the latest period for which data is available.

Quality review

However, the IBA said this growth was also due to the Asset Quality Review conducted by the Reserve Bank of India, which revealed a lot of loans as NPAs, which were earlier classified as standard assets.

That said, the association admitted that the NPA problem was getting worse.

“After the recapitalisation announcement [by the government], in the subsequent quarters also the NPAs have increased,” the IBA said.

“NPA is one of the major concerns for the banking system around the globe and the Indian banking system is not an exception to this universal phenomenon.”

Among the ways forward to tackle this issue, along with the issue of shortage of capital with banks, was “extending the time frame for full implementation of Basel III” from the current deadline of March 2019, and “a realistic assessment of capital requirement of PSBs and need for further infusion of capital by promoters/owners.”

The Basel III norms are international standards that lay strict requirements on banks’ equity and capital ratios.

The RBI has been implementing the norms in a phased manner from April 2013, and they have to be fully implemented by March 31, 2019.

The IBA also called for periodic visits to the borrowers’ business units for the verification of stocks, and the plant and machinery along with the “proper scrutiny of the quarterly financial statements and projections received from the borrower.”

Another major issue it raised was the strain put on banks’ resources by the fast pace of technological advancement.

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