According to the Economic Survey 2019, the performance of the banking sector has improved as bad loans declined and credit growth accelerated in the last fiscal.
The survey said that the gross non-performing asset (NPA) ratio of public sector banks (PSBs) decreased from 11.5 percent to 10.1 percent between March 2018 and December 2018.
However, the survey raised the concerns over liquidity conditions as financial flows to the economy was constrained due to the decline in the amount of equity finance raised from capital markets and stress in the Non-banking Financial Company (NBFC) sector.
“In 2018-19, the liquidity conditions were comfortable, till August 2018, but have 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 today.
The survey showed that “Capital mobilised through public equity issuance declined by 81 percent in 2018-19. Credit growth rate Year-on-Year (YOY) of the NBFCs has declined from 30 percent in March 2018 to 9 percent in March 2019.”
The monetary policy witnessed a u-turn over the last year, with the benchmark the 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 the Finance Minister.
The ecosystem for insolvency and bankruptcy is getting systematically built out. “It has already led to recovery and resolution of a significant amount of distressed assets as well as palpably improved business culture, she added.
As on March 31, 2018, the total stressed assets pool reached about Rs 10.6 lakh crore for Public Sector Banks (PSBs) and Rs 12-13 lakh crore for the overall banking system. On February 28, 2019, as many as 6,079 cases involving a total amount of Rs 2.84 lakh crores have been withdrawn before admission under provisions of Insolvency and Bankruptcy Code (IBC).
Sitharaman said in the Parliament that, “As per the Reserve Bank of India 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 behavioral change for the wider lending ecosystem even before entering the IBC process.”
(With Inputs from a business website)