CREDIT GROWTH NPA REDUCTION

CREDIT GROWTH, NPA REDUCTION TO DEPEND ON PACE OF ECONOMIC REVIVAL

       On Tuesday, RBI had announced that that the Indian banks are getting a better control over the their bad debt situation and NBFC are expected to regain their niche after this turbulent one year but, there will be further reduction in bad debts and credit growth depending upon how fast the economy recovers from the slowdown, that is the banks, and non-banks are decreasing their credit to commercial sectors and increases the specter of default in the retail loans.

                          As per the RBI report, the credit to the commercial sector had decreased by Rs 52,971 crore during April-September from an expansion of Rs 3.66 trillion in the same period a year ago and the risk of the retail segment had not decreased. As a result of bank orienting the lending toward the relatively stress-free retails there was a slowdown in the private consumption and imposed limits to the growth strategy even as the possibility of default among retail segments rises as growth slow down. But this weakening growth impulses and a depressed credit off-take, along with an irregular credit default and incident frauds. The Evolution of macroeconomic scenario had resulted in the loss of pace in the domestic activity and the difficulty in the challenges of risk aversion had turned credit demand even as corporation deleverage their own stressed balance sheets and this was taking hold at the time when the recent improvements in asset quality and the capital adequacy ratio of the PSBs were being shored up through the recapitalization by the government. Even after having an effective bankruptcy code in the environment, the overhang of the NPAs remains and further improvements in the banking sector hinge around a reversal in macro-economy.

    The banking system gross NPA ratio declined after 7 years from 11.2 % in March last year to 9.1 % in this year and the sector became profitable in the 1^st half of 2018-19 owing to lower provisioning. The recovery had also improved in the year due to the Insolvency and Bankruptcy Code.

The RBI welcomed the decision of merging PSBs, stating that this can really transform the face of the banking sector. Indian banks can the potential to become global banking leaders through the emergence of stronger, well capitalize bank aided by cutting edge technology and state of the art payment system. However, the recapitalization of the PSBs remains an unfinished agenda. The capital needed by the bank was not only to meet the regulating minimum but to guard against balance sheet stress as well as to improve their valuation methodologies, credit monitoring and risk management strategies to build resilience. While the private banks had taken the space vacated by the risk averse public sector banks, the fault lines are becoming evident in the corporate governance of the private banking industry. Bank lending to NBFCs remained strong because of the policy initiative, but banks must focus on risk pricing to avoid building up excessive risk. The balance sheet size of the NBFC sector was roughly 18.6 % of that of the banks. This resulted in the stress after IL and FS crisis, the government and RBI had taken measures to put and end or diminish the investors apprehension and aid NBFCs to perform better.

      In the present days the RBI will continue to maintain a constant vigil over NBFCs and will take necessary steps to attain the stability. The urban corporate banks are suffering from a low capital base, weak corporate governance, frauds, new technology and inadequate system of checks and balances.