New Fault Lines in Banking

Even as banks lower their NPAs for the year, new areas of stress are emerging that may create headaches for the financial sector and the RBI.

- ANAND ADHIKARI

. Punjab National Bank, India’s second-largest public sector bank, has gross NPAs of 22.71 per cent in small Mudra loans in September-end 2019

. State Bank of India’s agriculture NPAs have risen from 5 per cent three years ago to 14 per cent in the first half of 2019/20

. The telecom sector, which has seen two bankruptcies in as many years, is staring at another big liquidation after the Supreme Court ruling on payment of ₹92,641 crore AGR dues in January

. The RBI has warned about the possibility of rising defaults in unsecured retail loans as growth slows

For the banking sector, just looking to come out of the NPA crisis – gross NPAs fell after seven years, from 11.2 per cent in 2017/18 to 9.1 per cent in 2018/19 – the good news may be short-lived. More stress is emerging in agriculture, Mudra small loans, unsecured retail loans and telecom where banks and non-banks have as much as ₹27-31 lakh crore locked up (See New Stress Points). The total balance sheet of banks and non-banks is ₹190 lakh crore, equal to India’s GDP, and any blow-up in these segments could threaten the stability of the financial system as well as the already vulnerable economy.