Banks’ bad loans at 10-year low, resilient to shocks: RBI

Stress tests conducted by the RBI to assess the resilience of scheduled commercial banks (SCBs) reveal that they are well capitalized and able to absorb macroeconomic shocks over a one-year horizon even in the absence of any additional capital injection.

Under the base scenario, the total capital-to-risk-weighted-asset ratio (CRAR) for 46 major banks is expected to decline from 17 percent in March to 16.1 percent by March 2024, according to stress test results published in the Financial Stability Report. (FSR).

FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Board (FSDC-SC) on the prevailing and emerging vulnerabilities in the Indian financial system.

The CRAR (percentage of capital to risk-weighted assets) of the above banks could drop to 14.7 percent in the medium stress scenario and to 13.3 percent under the severe stress scenario by March 2024, remaining above the minimum capital requirements, including That is the Capital Conservation Reserve (CCB), at 11.5 per cent.

The FSDC-SC said none of its 46 credit union banks would breach the minimum 9 percent capital requirement next year, even in a severe stress situation, although 7 credit facilities could be below the minimum. of capital, including the China Construction Bank.

stress test

According to the results of the stress test, the total non-performing assets (GNPA) of all credit banks may improve to 3.6 percent by March 2024 under the base scenario from the March 2023 level of 3.9 percent.

However, if the macroeconomic environment worsens to a moderate or severe stress scenario, GNPA could rise to 4.1 percent and 5.1 percent, respectively.

Stress tests assess the resilience of banks’ balance sheets to unexpected shocks arising from the macroeconomic environment.

FSDC-SC noted that despite a challenging global macroeconomic background, the Indian economy and domestic financial system remain resilient.

He emphasized that the health of the banking system is positive in this environment, with improved profitability, asset quality, adequate levels of capital, and precautionary liquidity.

SCB’s GNPA ratio continued its downward trend and fell to a 10-year low of 3.9 percent in March 2023 and its NNPA ratio fell to 1.0 percent.

Bank profits are growing

The allotment coverage ratio (PCR) increased to 74.0 percent. Thanks to the strong growth in net interest income and a significant decrease in provisions, the Savings and Credit Bank’s profits after taxes recorded a growth of 38.4 percent in the period 2022-2023.

Healthier balance sheets are spurring a sustained and broad-based recovery in credit growth momentum, the report said, with improved credit flows to all sectors of the economy.

Despite the recent increase in bank credit growth, India’s credit-to-GDP gap remains negative since March 2013, reflecting weaker credit absorption in India compared to developed and emerging market peers, as per the Financial Stability Act.