As per the RBI's financial stability report, the gross non-performing advances (GNPAs) of SCBs as percentage of gross advances increased to 4.6 per cent from 4.5 per cent between September 2014 and March 2015

1. Current Status and Trends of
NPAs
Part 7
Indian Banking
Moving towards a new landscape

2. Current Status and Trends of NPAs
As per the RBI's financial stability report, the gross non-performing advances
(GNPAs) of SCBs as percentage of gross advances increased to 4.6 per cent
from 4.5 per cent between September 2014 and March 2015. PSBs recorded
the highest level of stressed assets at 13.5 per cent of total advances as of
March 2015, compared to 4.6 per cent in the case of PVBs. The net non-
performing advances (NNPAs) as a percentage of the total net advances for all
SCBs remained unchanged at 2.5 per cent during September 2014 and March
2015. At bank group level, NNPA ratio of PSBs increased from 3.1 per cent to
3.2 per cent and in the case of PVBs, it increases from 0.8 per cent to 0.9 per
cent.

3. Impact of UIDAI (Aadhaar) in
Financial Inclusion
To address this issue, UID system was introduced in 2009. UID, i.e., Aadhaar is
a 12-digit unique number issued by the Unique Identification Authority of
India (UIDAI) to all Indian residents after collecting and verifying their
demographic (e.g., location) and biometric (e.g., fingerprint, iris) data ,Only in
a few years, Aadhaar has become a big source of identity verification. With an
UIDAI number, a person can open a bank account as it works as an
identification document under the KYC norms. By providing a clear proof of
identity, Aadhaar facilitates entry for poor and underprivileged residents into
the formal banking system and the opportunity to avail services provided by
the government and the private sector. .

4. Impact of UIDAI (Aadhaar) in Financial
Inclusion
On account of its growing relevance, the government has made Aadhaar a
centerpiece of its financial-inclusion strategy. Aadhaar is playing a vital role in
the creation of a unified payment infrastructure to drive targeted and direct
distribution of subsidies. Aadhaar enables easier, faster and cheaper
enrolment of beneficiaries by banks or other institutions involved with the
delivery of government benefits transfer.
Last month, the Supreme Court allowed the use of the Aadhaar number for
Mahatma Gandhi National Rural Employment Guarantee Scheme
(MGNREGS), the Pradhan Mantri Jan Dhan Yojana (PMJDY), central and state
government pensions and the Employees' Provident Fund (EPF) scheme, in
addition to the public distribution system (PDS) and distribution of liquefied
petroleum gas (LPG) and kerosene.

5. Current Status and Trends of NPAs
The sub-sectors that were undergoing maximum stress include infrastructure,
iron and steel, textiles, mining (including coal) and aviation. According to the
RBI data, these five sub-sectors had 51 per cent of total stressed advances of
all commercial banks as of June 2015. Sectors such as steel, mining, aviation,
power, textiles and real estate are still under stress either due to global
factors-such as the recent China slowdown- or domestic reasons like
governance issues, lack of tariff hikes (in power), land acquisition hurdles,
correction in real-estate prices and high incidence of stalled projects. Further,
RBI's move to withdraw special asset classification benefits available to
corporate debt restructuring with effect from April 1, 2015 has led to a
sudden drop in assets being 'restructured', with banks becoming very choosy
about restructuring loans to borrowers who are under stress, contributing to
higher NPAs.

6. Low number of successful exits in the CDR cell has also hurt the banks. As per
the data available in the corporate debt restructuring (CDR) cell, one out of
every three cases approved for debt repair under the CDR mechanism has
failed and exited the cell. As on 31 July, CDR cell approved debt restructuring
for over 530 loan accounts with a total loan amount of over Rs.4 trillion. Of
this, 180 cases with a total loan of Rs.70,000 crore failed and exited the CDR
mechanism. It implies that nearly 33% of the cases approved for debt repair
had failed to effectively implement the approved restructuring package. In
comparison, there were 83 successful exits with loans worth Rs.61,311 crore,
but they only account for 16% of the approved cases. Bankers have gone slow
on referring and approving fresh cases of restructuring since 31 March 2015,
as RBI's new guidelines on restructuring of advances force banks to classify
any fresh restructured cases as an NPA and set aside higher provisions
starting from 1 April. Cases restructured till 31 March carried provisions of
only S% of the loan amount.
Current Status and Trends of NPAs

7. Current Status and Trends of NPAs
On account of high level of stressed assets in the banking system, banks have
turned cautious about whom they are lending. This cautiousness had a cascading
effect as credit off-take slowed down, which in turn led to stagnation of
economic growth. The reason for this is being attributed to the over-leveraged
nature of corporate balance sheets. To expand rapidly, corporates had borrowed
aggressively during the last few years. But with economy not picking up as
expected, the revenues haven't grown enough to cover the costs of servicing the
loans. Consequently, the banks have turned cautious towards corporate credit
keeping in view the stress coming from the sector and rather they are relying
more on retail sector for meeting their projected credit growth target. A rise in
NPAs hurts the bank in two ways (i) such loans cease to earn interest for the
banks (ii) calls for additional provisioning from out of profits. As result, rise in the
level of NPAs tends to impact profitability of banks.

8. Current Status and Trends of NPAs
Though, the non-performing assets of Indian banks are at a high level, but the
situation is expected to improve as the government and the central bank are
taking steps to relieve stress in various sectors. In fact, some improvements
can already be seen on account of the several measures that have been taken
by government to speed up economic growth - like speedier approvals for
stalled projects, quick award of tenders of infrastructure related projects, etc.
and improvement of the general business operating environment, which is
resulting in easing up of tight corporate cash flows. Due to the positive
change in operating environment, there will be lesser number of problem
loans going forward. The extent of the problem will further decrease as the
cyclical economic recovery strengthens. This in turn will lead to lowering of
NPAs as a percentage of overall portfolio. In fact, few public sector banks have
already improved in bad debt recovery to bring down their NPA level,
especially large PSBs including State Bank of India (SBI) and Punjab National
Bank (PNB).

9. THANK YOU
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