From 7.8% to 9.1% in six months

Large borrowers register significant deterioration in asset quality

MUMBAI: The RBI on Thursday said that GST and demonetisation have the potential to transform the economy, "notwithstanding some inconvenience to public and momentary adverse impact on growth", even as it flagged elevated risks due to continuous deterioration in banks' asset quality. It also observed that while the financial performance of the corporate sector has improved in 2016-17, the risk of lower turnover remains. It also said large borrowers registered significant deterioration in their asset quality.

"The measures such as transition to the nationwide GST and the withdrawal of legal tender status of specified bank notes (old Rs 500/1000) could potentially transform the domestic economy, notwithstanding some inconvenience to public and the momentary adverse impact on growth," RBI said. These observations were made in the Report on Trend and Progress of Banking in India 2015-16 (RTP) and the 14th issue of the Financial Stability Report (FSR).

In his foreword to FSR, RBI Governor Urjit Patel said the withdrawal of Rs 500/1000 notes "will impart far reaching changes going forward". "It is expected to significantly transform the domestic economy in due course in terms of greater intermediation, efficiency gains, accountability and transparency through increasing adoption of digital modes of payments, notwithstanding the short-term disruptions in certain segments of the economy and public hardship," he said.

The Governor also cautioned that there is "little room" for complacency and it is important to guard against sporadic volatility in financial markets. RBI further said that the banking stability indicator shows that the risks to the banking sector remained elevated due to continuous deterioration in asset quality, low profitability and liquidity.

The business growth of banks remained subdued with public sector banks (PSBS) continuing to lag their private sector peers. System level profit after tax (PAT) contracted on y-o-y basis in the first half of 2016-17. The asset quality of banks deteriorated further between March and September 2016. PSBS continued to record the lowest capital to risk-weighted assets ratio (CRAR) among the bank groups with negative returns on their assets. "The GNPA (gross non-performing advances) ratio of SCBS increased to 9.1 per cent in September 2016 from 7.8 per cent in March 2016, pushing the overall stressed advances ratio to 12.3 per cent from 11.5 per cent. The large borrowers registered significant deterioration in their asset quality," said the central bank.

"Overall, India's financial system remains stable although banks, particularly the public sector banks, continue to face significant levels of stress," the FSR report said. It further said the macro stress test shows that GNPA ratio of banks "may increase further" under assumed baseline macro scenarios.

The PSBS may record the highest GNPA ratio and lowest capital to risk-weighted asset ratio (CRAR) among bank-groups although the CRAR at the system as well as bank-group levels is expected to remain above the regulatory required minimum. On macro-financial risks, it said that in the external sector, the narrowing of the CAD partly reflects the external spillovers in the form of sluggish trade growth.

"The decline in the flow of remittances is also a concern. Going ahead, capital flow, more than trade, is likely to influence the exchange rate," it said. It also said that with the implementation of global regulatory reforms, most of the major international banks have become more resilient in terms of capital and liquidity. However, risks of divergence from the demanding global standards amidst discriminatory treatment of foreign financial institutions seem to have increased.

Globally, some risks inherent in banks may be getting transferred to other segments of the financial markets due to increased regulatory scrutiny and elevated capital requirements for banks. As per the RTP 2015-16, the performance of banking sector remained subdued during 2015-16 amidst rising proportion of banks' delinquent loans, consequent increase in provisioning and continued slowdown in credit growth. However, banks' retail portfolios registered double-digit growth during the year.

During 2015-16, banks' interest earnings and non-interest incomes were adversely affected, which led to a more than 60 per cent drop in net profits for the banking sector. Banks' return on assets (ROA) and return on equity (ROE) showed a substantial decline as compared to the previous year even as the PSBS reported negative ROA, it said. NEW DELHI: Trai will again begin drive tests in January to assess call drop and other network issues of various operators, including newcomer Reliance Jio. “Drive tests are going to start next month. We should have had it in the fourth quarter, that is December, but there were delays due to some issue with our agency...those are being sorted out and we will definitely have drive test in January,” said Trai Chairman, R S Sharma. Recalling that the last round of drive tests were in 12 cities, Sharma said this time around, they would be conducted in “at least those 12 cities.” “There may be additional areas, and also maybe, some highways...this will be the first time we may be covering the highways,” Sharma said.

Asked if the new operator Reliance Jio will also be part of the drive test this time, he said, “Yes, sure. Jio will be there”. According to Trai's analytics portal, drive tests were conducted in Amritsar in AugustSeptember, and in Delhi, Hyderabad, Bhopal, Chandigarh, Mumbai, Lucknow, Kanpur, Ahmedabad, Ranchi, Darjeeling, Sikkim and Trivandrum in May-june.

While the telecom operators submit Performance Monitoring Reports to Trai every quarter, the regulator also undertakes audit and assessment of service quality through independent agencies. The audit agencies conduct sample Drive tests across various cities in the country, as part of audit and assessment of the operators' performance.

The drive tests assess the performance of networks on various quality benchmarks, including call set-up success rate, call drop rate, blocked calls and Radio Frequency (RF) Coverage. Over the last few months, both telecom regulator and Department of Telecom have toughened their stance on service quality issues such as call drops and call failures.

In October, Trai recommended imposition of Rs 1,050 crore penalty each for Airtel and Vodafone, and Rs 950 crore for Idea Cellular, for denying interconnect to Jio, after taking note of the high rate of call failures and congestion at interconnect points for the new operator. Telecom Department has been calling regular meetings with CEO of telcos to review the call drop situation, an issue that has been troubling mobile phone users for a long time.

In an attempt to tackle the call drop menance, DOT has announced the launch of an Integrated Voice Response System (IVRS) system at multiple locations including Delhi and Mumbai to obtain direct feedback from subscribers on call quality.

Note ban ‘to transform economy through increasing adoption of digital modes of payments, notwithstanding short-term disruptions and public hardship,’ says RBI Governor Urjit Patel