UCBs' asset quality and finances deteriorate in FY20, says RBI report

 

The rise in NPAs may partly be attributable to stagnant growth in loans and advances and weak balance sheets

The financial and asset quality profile of urban co-operative banks (USBs) deteriorated in the financial year 2019-20 (FY20), with the sector reporting net loss, an uptick in bad loans, and a fall in the provision coverage ratio.
Gross non-performing assets (NPAs) rose from 7.3 per cent in 2018-19 to 10.8 per cent in FY20. In absolute terms, NPAs worth Rs 10,900 crore were added, taking the tally to Rs 33,010 crore by March 2020.

The rise in NPAs may partly be attributable to stagnant growth in loans and advances and weak balance sheets, according to the Reserve Bank of India’s (RBI’s) Trends and Progress of Banking in India report.

Historically, UCBs have had a higher level of NPAs than scheduled commercial banks (SCBs). Since 2015-16, however, this position reversed, with the asset quality review resulting in greater NPA recognition in SCBs, while the asset impairment of UCBs inched up gradually over time.

In 2019-20, the GNPA ratio of UCBs again surpassed that of SCBs. The change was driven by improvement in the asset quality of SCBs for two consecutive years while the slippages of UCBs increased.

SCBs as group showed GNPA of 9.1 per cent in March 2019 and 8.2 per cent in March 2020.

While both gross NPAs and provisioning increased during 2019-20, the growth in provisions was not fully commensurate with the growth in the former, resulting in an increase in the net NPA ratio.