India’s financial system deadlocked amid pandemic – central bank

A logo of the Reserve Bank of India (RBI) can be seen at the door of its office in New Delhi, India on November 9, 2018. REUTERS / Altaf Hussain

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MUMBAI, Dec. 29 (Reuters) – Financial institutions in India have remained resilient amid the pandemic and stability prevails in financial markets, dampened by political and regulatory support, according to a central bank financial stability report.

“Bank balance sheets remain strong and capital and liquidity cushions are strengthened to mitigate future shocks, as evidenced by stress tests presented in this report,” wrote Reserve Bank of India Governor Shaktikanta. Das, in his foreword to the report.

The Financial Stability Report is published twice a year by the RBI on behalf of the Financial Stability and Development Council, a group of regulators that provide insight into the health of the Indian financial system.

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“While the quality of banks’ assets has improved, with the ratios of gross non-performing assets (GNPA) and net of NPAs (NNPA) decreasing to 6.9% and 2.3% respectively, their slippage ratio has increased slightly in September 2021, “the report says. .

The report predicts that banks’ GNPAs will increase to 8.1% of total assets by September 2022, up from 6.9% in September 2021 in a baseline scenario and to 9.5% in a severe stress scenario.

These projections are, however, more optimistic than those made in July where GNPAs in a reference scenario were expected to be close to 10% in March 2022.

“Stress tests show that all banks would be able to comply with minimum capital requirements even under severe stress scenarios,” the report adds.

The capital to risk-weighted assets (CRAR) ratio of programmed commercial banks reached a new high of 16.6% and their provisioning coverage ratio (PCR) stood at 68.1% in September 2021, according to the report.

“As the economy recovers and demand for credit increases, banks will need to ensure the availability of sufficient capital to support credit growth,” the report said.

However, he warned non-bank financial corporations and urban cooperative banks to be aware of liquidity weaknesses and ensure sound asset-liability management, in addition to improving the quality of their credit portfolios.

“Stress tests indicate that a significant number of NBFCs would be adversely affected in the event of liquidity shocks,” the report said.

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Reporting by Swati Bhat Editing by Chizu Nomiyama

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Don F. Davis