Reserve Bank of India (RBI) on December 29 said in its 23rd issue of the Financial Stability Report that Banks' gross non-performing assets (GNPAs) may jump from 6.9 percent in September 2021 to 8.1 percent by September 2022 under the baseline scenario and to 9.5 percent under a worst-case scenario. The report noted that despite the deadly second wave of Covid-19, the performance of the Banks has turned out to be the best in recent years. It was noticed that there was an increase in profitability due to a decline in expenditure. Though, the income remained stable.

The Apex Bank’s FSR (Financial Stability Report) reviews the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks adhering to financial stability and the resilience of the financial system.

It was further stated in the RBI’s FSR report that Scheduled Commercial Banks would, however, have sufficient capital, both at the aggregate and individual levels, even under stress conditions. Emerging signs of stress in micro, small and medium enterprises (MSME) along with the microfinance segment call for close monitoring of these portfolios going forward.

Key highlights of the report:

• The gross non-performing assets (GNPAs) ratio of banks may increase from 7.48% in March 2021 to 9.8% by March 2022. 

• At the end of March 2021, 15.9% of loans of less than Rs. 25 crore to the MSME Sector had turned bad, as they are facing tumultuous stress in paying back the loan.

• Capital to risk-weighted assets ratio (CRAR) of Scheduled Commercial Banks (SCBs) increased to 16.03% in March 2021. 

• In March’21, the Provision coverage ratio stood at 68.86%. Demand has decreased amidst the second wave of Covid-19 for consumer credit across banks and non-banking financial companies (NBFCs).

• Banks have remained relatively unaffected by distractions caused due to the pandemic and are well protected by regulatory, monetary and fiscal policies. 

The FSR report further said,” On the domestic front, progress in vaccination has enabled the recovery to regain traction after the debilitating second wave of the pandemic. However, there are signs of slowing pace more recently. Also, the corporate sector is gaining strength and bank credit growth is improving.”

The Central Bank, in its report, said, “The moderation in GNPA ratios of banks that began in 2019-20, continued during the period under review to reach 7.3 per cent by end-March 2021. Provisional supervisory data suggest a further moderation in the ratio to 6.9 per cent by the end-September 2021. During 2020-21, this improvement was driven by lower slippages, partly due to the asset classification standstill. With the decline in delinquent assets, their provision requirements also dropped, and the net NPA ratio of PSBs and PVBs eased from the previous year.”