RBI Annual Report: Asset quality of banks needs to be closely monitored, warns RBI

RBI additionally stated that the waiver of compound curiosity on all mortgage accounts which opted for moratorium throughout March-August 2020 may additionally put stress on banks’ monetary well being.

The Reserve Financial institution of India (RBI) on Thursday stated that asset high quality of the banks would wish shut monitoring together with their preparedness for increased provisioning in coming quarters.

In its semi-annual monetary stability report, RBI had earlier stated that the unhealthy mortgage ratio of banks may rise to 13.5% underneath the baseline stress situation by September 2021. The regulator has cautioned banks as lenders must present true image of unhealthy loans after Supreme Court docket lifted interim keep on classifying non-performing belongings (NPA) in March 2021. RBI additionally stated that the waiver of compound curiosity on all mortgage accounts which opted for moratorium throughout March-August 2020 may additionally put stress on banks’ monetary well being.

Final yr, RBI had introduced a six-month moratorium for all time period mortgage debtors within the wake of Covid impression on debtors. The Supreme Court docket had directed lenders to waive compound curiosity of the debtors through the moratorium interval. The regulator is of the view that banks are higher positioned than earlier than in managing stress of their steadiness sheets because of increased capital buffers, enchancment in recoveries and a return to profitability. “Stress checks point out that Indian banks have adequate capital on the mixture degree even in a extreme stress situation. Financial institution-wise in addition to system-wide supervisory stress testing present clues for a forward-looking identification of susceptible areas,” RBI stated in its annual report 2020-21 launched on Thursday.

The report, nonetheless, highlighted that gross NPA ratio of banks decreased to six.8% by December 2020 from 8.2% in March 2020. Prudent provisioning by banks, even over and above regulatory prescriptions for accounts availing moratorium and present process restructuring, resulted in an enchancment within the provision protection ratio (PCR) of banks. Provision protection ratio has improved to 75.5% at December-end 2020 from 66.6% in March 2020. Adjusting for write offs, the PCR was 88%, up from 81.3% in March 2020.

The capital to risk-weighted belongings ratio (CRAR) of banks rose to fifteen.9% by end-December 2020 from 14.8% at end-March 2020. The capital adequacy ratio of banks was aided by capital elevating from the market by private and non-private sector banks, and retention of income.

The report additionally stated that gross NPA ratio for non-banking monetary establishments (NBFCs) improved to five.7% in December 2020 from 6.8% in March 2020. Equally, the capital adequacy ratio of NBFCs marginally improved to 24.8% in December 2020 from 23.7% throughout the identical interval final yr.