Indian banks might have recuperated from the pandemic woes yet the RBI have indicated that Indian banks is likely to to have an uncertain outlook. Despite better asset quality and capital buffers, the geopolitical tensions can bring in uncertainty, a report titled Trend and Progress of Banking in India 2021-22 by RBI stated on Tuesday.
“With global growth set to deteriorate in 2022 and with rising prospects of a recession in 2023, credit growth could procyclically decelerate across major economies which, in turn, could shrink bank profitability,” RBI said.
“Higher capital and liquidity buffers have helped banks and financial institutions to remain resilient and stable. Nonetheless, fears of a hard landing have increased worldwide,” RBI added.
Scheduled commercial banks’ (SCBs) gross net-performing assets (GNPA) have been diminishing since its growth in 2017-18, and have now resulted to 5% by the end of September 2022. “In 2021-22, the reduction in NPAs was mainly contributed by written-off loans in the case of PSBs, while upgradation of loans was the primary driver for asset quality improvement for PVBs,” RBI claimed in its report.
Furthermore the capital-to-risk weighted assets ratio (CRAR) of SCBs increased to 16.8% by March 2022 end compared to the previous year’s 16.3%. RBI said that all banks have met the regulation of 11.5% minimum capital requirement including the common equity tier-1 (CET-1) ratio of 8%.
Urban Co-operative banks (UCBs) on the other hand witnessed capital buffers but a lower rate of GNPA ratio resulting in improved profitability indicators.
“The NBFC sector maintained comfortable liquidity buffers, adequate provisioning, and a strong capital position during 2021-22, while asset quality improved,” RBI mentioned in its report.