MUMBAI: The scheduled banks show signs of improvement in health with the betterment of gross non-performing assets (GNPA), however, a fall in interest income has adversely affected urban co-operative banks’ profitability.
Among rural co-operatives, the financial health of state cooperative banks and district central co-operative banks weakened with increased non-performing assets and slowdown in profitability, said the Reserve Bank of India (RBI) on Tuesday.
“The banking sector showed improvement with the GNPA ratio of scheduled commercial banks (SCBs) declining from 11.2 per cent in March 2018 to 9.1 per cent in March 2019 and returned to profitability in the first half of the financial year 2019-20,” the apex banking regulator said.
The government has been infusing capital in some PSBs, which has been just enough to meet the regulatory minimum including capital conservation buffer (CCB). The deferment of the implementation of the last tranche of the CCB till March 31, 2020 has offered some breathing space to these banks. “Their capacity to sustain credit growth in consonance with the financing requirements of the economy will,” the report said.
The report also narrated that in the co-operative banking arena, the consolidated balance sheet of urban co-operative banks (UCBs) expanded in 2018-19 on account of robust deposit growth. However, a fall in interest income adversely affected their profitability. among rural co-operatives, the financial health of state cooperative banks and district central co-operative banks weakened with an increase in the non-performing assets and slowdown in profitability.
In order to strengthen the liquidity framework for NBFCs, a liquidity coverage ratio (LCR) has been introduced for all deposit-taking NBFCs and non-deposit taking NBFCs with an asset size of Rs 5,000 crore and above.
“The pace of credit expansion by NBFCs, which began slowing in 2018-19, continued in the first half of 2019-20, largely affected by the performance of non-deposit taking systemically important NBFCs though capital buffers remained above the stipulated norms. Bank credit remained a stable source of funding for NBFCs,” said RBI.
This measure covers almost 87 per cent of the total NBFC sector by asset size and will be implemented along a glide path spanning over four years, commencing from December 2020. The complex business structure of the core investment companies (CICs), which were at the heart of the recent NBFC sector challenge under review.
Several other measures have also been initiated to improve the resilience of the sector apart from strengthening the existing four pillars of supervision, for example - on-site examination, off-site surveillance, market intelligence and reports received from statutory auditors, a fifth pillar - periodic interaction with stakeholders like statutory auditors, credit rating agencies, and banks that have large exposures to NBFCs—is getting institutionalised as part of the supervisory process for monitoring the incipient build-up of risks so as to be able to take pre-emptive actions.
The entry of non-traditional and digital players in the non-banking space has added further complexity to the existing web of interlinkages between sectors. While it is necessary to encourage innovation in financial services, especially to the unbanked strata of the society, a close watch on potential fault lines is also important to ensure timely mitigation of risks to financial stability.
The Reserve Bank endeavours to ensure an optimal level of regulation and supervision in this sector so that it is financially resilient and robust.