The credibility of the Indian banking system is at stake. This is due to the perception that a significant portion of restructured standard advances are actually impaired or will turn bad, according to a top central bank official.

Gross non-performing assets ratio (GNPAs) was hitherto the main financial ratio to gauge the level of impairment in the banking sector assets. But this is now being complemented with the ratio of restructured standard advances to gross advances as a measure of latent impairment of the banking sector’s financial assets.

“This is in view of the perception by some of the market players that a significant portion of these standard advances are actually impaired or will turn non-performing with passage of time. The credibility of the Indian banking system is at stake,” said B. Mahapatra, Executive Director, Reserve Bank of India.

Alarming rise

There has been an extraordinary rise in the level of restructured ‘standard’ assets. These assets surpassed the quantum of gross NPAs of the banking sector, he said at a seminar organised by the Centre for Advanced Financial Research and Learning.

As on March-end 2012, the restructured standard advances of the banking system stood at Rs 2,18,068 crore (Rs 1,06,859 crore as on March-end 2011) while the gross NPAs stood at Rs 1,37,102 crore (Rs 94,088 crore).

The latest Financial Stability Report of the RBI estimated that 15 per cent of restructured loans may turn bad while the working group to review the existing prudential guidelines on restructuring of advances took a more conservative view under a stressful scenario and estimated that 25-30 per cent of such loans may slip into non-performing category.

>kram@thehindu.co.in

Related Topics