Banks have turned risk averse after facing steady rise in bad loans: RBI

Atmadip Ray, ET Bureau Oct 29, 2012, 07.55PM IST

KOLKATA: Banks have turned risk averse after facing steady rise in bad loans, Reserve Bank of India said.

The RBI said that banks' gross and net non-performing assets ratios slipped further during April-June quarter after showing a worsening trend in the last fiscal across bank groups. "Deterioration in the assets quality and in the macroeconomic conditions resulted in added risk aversion in the banking sector," it said.

This led to a portfolio switch from credit creation to investments in government securities on the back of government's large market borrowing. Commercial banks were holding around 28% of their net deposits in government securities as on September 30, 2012.

Banks' collective gross NPA ratio slipped to 3.25% in the June quarter from 2.94% a quarter back. The slip in bad loan ratios were maximum for the public sector bank group, which account for nearly three-fourth of total banking sector advances.

The slippage ratio or ratio for fresh NPAs deteriorated too at 3.04% from 2.60%, indicating additional stressto the sector. Banks booked fresh NPAs across sectors like iron and steel, textile, airlines, power and retail.

RBI said all banks have seen a fall in year-on-year credit growth at end-September.

"Monetary and credit aggregates remain below their indicative trajectory," the central bank said in its monetary and macroeconomic review.

"The current credit slowdown largely indicates tepid demand conditions and distinctively lower credit expansion by public sector and foreign banks partly reflecting their risk aversion."