MUMBAI: The RBI has confirmed the worst fears that stress in the banking sector will remain high this fiscal.
The central bank’s latest Financial Stability Report (FSR) released Tuesday noted that gross non-performing assets (NPA) ratio of scheduled commercial banks will touch 12.20 per cent by March 2019, up from 11.60 per cent a year before.
Worryingly, the 11 state-owned banks that are under prompt corrective action framework (PCA) will likely see their gross NPAs scaling up from 21 per cent in March 2018 to 22.3 per cent this fiscal. Of the 11, six may even experience capital shortfall relative to the required minimum CRAR (Risk-weighted Assets Ratio) of 9 per cent. High NPAs have been a drag on profitability of commercial banks, partly reflecting increased provisioning.
“Macro-stress tests indicate that under the baseline scenario of current macroeconomic outlook, SCBs’ (scheduled commercial banks) GNPA ratio may rise from 11.6 percent in March 2018 to 12.2 percent by March 2019,” it said. The system-level Capital to Risk Weighted Assets Ratio (CRAR) may reduce from 13.5 per cent to 12.8 per cent during the same period a year ago, the FSR noted.
The 11 banks under the PCA watchlist include IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.
Meanwhile, RBI said the spillover risk from advanced financial markets to emerging markets has increased, while on the domestic front, economic growth was firming up. “However, conditions that buttressed fiscal consolidation, moderation in inflation and a benign current account deficit over the last few years are changing, thereby warranting caution,” the report said.