According to the Financial Stability Report, the Reserve Bank of India said, “The gross non-performing asset ratio of scheduled commercial banks could rise up to 12.2 percent by March 2019 from 11.6 percent in March 2018, The estimate is based on a baseline scenario which assumes the continuation of the current economic situation. In the worst case scenario, the bad loan ratio could rise up to 13.3 percent by the end of the current financial year”.
The increase in bad loans recorded to be the highest for public sector banks. In some of the minor case, the banking regulator expects the gross NPA ratio for state-owned banks to tend up to 16.3 % by end of March 2019 from 15.6 % in March 2018. In the baseline, the capital adequacy ratio of 6 PSU banks may fall below the minimum regulatory level of 9 % by end of March 2019.
The RBI also reported, “while the share of cases filed by operational creditors is been increasing, those filed by financial creditors have seen a recent spike. Since most of the financial creditors are banks, this points to higher utilization of the code to resolve balance sheet stress”.
Banks falling under PCA could face restrictions issue on distributing dividends, remitting profits and even on accepting certain kinds of deposits. Besides all that, there are also restrictions provided on the expansion of branch network and along with capital management compensation and directors’ fees.