‘Credit growth is muted, indicating the mark of the epidemic; Asset quality may deteriorate going forward
The Reserve Bank of India (RBI), in its report on Trend and Progress, said scheduled commercial banks need higher capital cushion to meet the stress being experienced by borrowers as well as challenges to meet the potential credit requirements of the economy. will be required. Banking in India 2020-21.
“Banks need to put forward concrete strategies for timely infusion of capital,” said the report released on Tuesday.
However, it said that depending on the capital position as on September 30, all public sector banks (PSBs) and private banks (PVBs) maintained the capital conservation buffer at over 2.5%.
Emphasizing that in India, most of the pandemic measures had a well-specified sunset clause – some ran their course during the year – it said the impact of these measures on the financial health of banks was not immediately apparent and only Only after passing could it be fully fathomed. time.
It said that due to the pandemic and slowdown in economic activity, credit growth of scheduled commercial banks (SCBs) remained low in FY2011, but non-banking financial companies (NBFCs) stepped in to fill the gap.
“In [the first half of] 2021-22, though there has been some pick-up in credit growth of SCBs, concerns have emerged regarding the asset quality of NBFCs,” it added.
The RBI said that in the wake of pandemic-related lockdowns in FY2011, supply chains frozen, and demand plummeting, economic agents conserving cash as a precaution. This resulted in a sharp decline in credit growth despite an increase in deposits.
“The fall in yields provided a silver lining, as banks posted profits on their trading accounts. Banking stocks were particularly adversely impacted because of deterioration in asset quality in future, affecting the assets and confidence of shareholders in the markets,” it said.
RBI said that the data available so far for FY22 shows that there has been a reduction in the gross as well as net non-performing assets of the banks, while the provision coverage ratio, capital buffer as well as profitability indicators have declined pre- There has been an improvement relative to the level of the epidemic.
“However, a closer look at the granular data reveals a more nuanced picture. Credit growth is muted, indicating the pandemic’s mark on aggregate demand as well as banks’ risk aversion. Banks’ asset quality going forward There may be an impact.
“Most of the regulatory accommodations announced by the Reserve Bank, including postponing the implementation of net stable funding ratio, restriction on dividend payment by banks, deferment of the implementation of the last tranche of capital conservation buffer,” it has already concluded .
As the pandemic situation was dynamic, the regulatory response would be calibrated in response to the evolving situation, it said.
Stating that it had announced Resolution Framework 1.0 and 2.0 to provide relief to borrowers and lending institutions, it said that as the support measures begin to open up, some restructured accounts will be allowed to banks in the coming months. higher provisioning may be required by
According to the report, the consolidated balance sheet of SCBs picked up during FY2011, despite the pandemic and contraction in economic activity in the first half of the year. Deposit growth on the liabilities side was matched by investments on the assets side; However, credit offtake remained muted,” it said.
It said, “While supervisory data shows early signs of recovery in credit growth, deposit growth has been slow so far in 2021-22.
The share of public sector banks in total advances as well as deposits has been declining since
FY11, while PVBs were improving their share, it said.
In FY21, deposit mobilization by SCBs was the highest in seven years, mainly contributed by low-cost current account and savings account deposits. In the first half of FY22, deposit growth moderated with normalization of economic activity and rising inflation.
For the past three years, private non-financial corporations have been net savers, progressively increasing their deposits with SCBs, while their credit offtake remains anemic.
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