Analysis of stress asset incidence and recovery prospects for Indian banks

Abstract

The writing was on the wall, only no one acknowledged it. The fiscal year 2015 witnessed the Indian economy growing by 7.3% as compared to 6.9% in 2014, with the higher contributions from manufacturing, electricity and financial, real estate and professional services driving the growth wheel, whereas the sectors like agriculture, forestry and fishing and mining and quarrying could not quite live up to the billing and were the weak performers of the year1. Industrial Production for the Mining, Manufacturing and the Electricity grew positively, however, core sector growth slipped in the red2 reflecting hardly any recovery in the infrastructure space thereby muting any credit growth in 2015. Although the reported growth is high yet the actual demand conditions remain poor which plague the economy and the recovery prospects. There has a spurt in the growth in non- performing assets and restructured loans in the Indian banking system with the asset quality depleting lowest in the decade. The stressed assets ratio (gross non-performing assets plus restructured standard advances to gross advances) for the system as a whole rose to 10.9 per cent at the end of March 2015 compared with 10 per cent in March last year3 .This means that nearly INR 7.05 lakh crore worth of bank loans now fall in the stressed category compared with INR 5.91 lakh crore last year. According to the central bank s Financial Stability Report Dec 2015, five sub-sectors