InvestorQ : Is it true that the RBI has issued warnings on bank NPAs in its latest Banking Trends report?
diksha shah made post

Is it true that the RBI has issued warnings on bank NPAs in its latest Banking Trends report?

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Rutuja Nigam answered.
3 months ago
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The Reserve Bank of India in its latest report on Trends in Banking has issued a sharp warning. It has underlined that although gross bad loans had moderated in FY20 and in first half of FY21, the asset quality could sharply deteriorate in the quarters ahead. This was likely to happen due to NPAs not being visible due to the COVID moratorium.

The gross NPAs of the banking system had fallen to 7.5% in Sep-20 on the back of lower slippages and quick recoveries from some large accounts like Essar and Bhushan on account for pushing through the IBC process. Now, the RBI has cautioned that the actual level of NPAs would have been much higher but for the asset quality standstill for COVID.

In fact, RBI has specifically highlighted that the improvement in banks continued till Sep-20 predominantly due to the moratorium on loans and an asset classification standstill. This had avoided many of the accounts being classified as NPAs in the normal course of banking. Hence, RBI has hinted that NPA numbers must be taken with a pinch of salt.

The first signs of stress are evident in the fact that the restructured advances ratio is up to 0.43% in Sep-20 from 0.36% in Mar-20. It may be recollected that during COVID, RBI had permitted a moratorium on loan repayments. As of Aug-20, 41% of retail loans, 69.29% of SME loans and 34.28% of corporate loans were still under the moratorium.

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