The report noted that corporates are not able to take benefits of lower interest rates, which banks are offering, as they are already indebted.
Highly leveraged corporates are impeding the growth of bank lending thus preventing better monetary transmission as their ability to repay debt has worsened in the past few years, says a report released by the Reserve Bank.
"Besides its adverse impact on banks' balance-sheets, high leverage of corporates may hinder the transmission of monetary policy impulses as corporates may not be in a position to benefit from falling interest rates due to their high levels of debt," the half-yearly Financial Stability Report published by RBI said.
The report noted that corporates are not able to take benefits of lower interest rates, which banks are offering, as they are already indebted.
RBI has reduced it short-term lending rate by 75 basis points since the start of this year but banks have passed on only up to 30 bps by reducing their base rates.
The report said concerns remain around corporate sector leverage, especially in the context of its ability to service debt. "While leverage has increased, the ability to repay debt and debt servicing ability of the corporates has declined," the FSR said.
As per the report, gross non-performing advances (GNPAs) rose to 4.6% from 4.5% between September 2014 and March 2015.
The restructured standard advances during the period also increased, pushing up the banks' stressed advances to 11.1% from 10.7%.
State-run banks recorded the highest level of stressed assets at 13.5% of total advances as of March 2015, compared to 4.6% in the case of private sector banks.
However, net non-performing advances (NNPAs) for all banks remained unchanged at 2.5% during September 2014 and March 2015.
The report said five sub-sectors-- mining, iron & steel, textiles, infrastructure and aviation --constituted 24.8% of the total advances of banks, while this is a whopping 51.1% of the total stressed loans.
"Among these five sectors, infrastructure and iron & steel had a significant contribution in total NPAs accounting for nearly 40% of the total," the report said.
The report said the macro stress test of credit risk suggests that under the baseline scenario, the GNPA ratio may increase to 4.8% by September 2015 from 4.6% in March 2015, but may improve to 4.7% by March 2016.
However, if the macroeconomic conditions deteriorate, gross NPAs may increase further and it could rise to around 5.9% by March 2016 under a severe stress scenario.
"Under such a scenario, the system level CRAR of banks could decline to 11.5% by March 2016 from 12.9% as of March 2015," the report said.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}