NEW DELHI: At a time when the countries are grappling with multiple challenges, India’s economy and financial remain stable and the banking system is sound and well-capitalised, said Reserve Bank of India (RBI) Governor Shaktikanta Das.
In his foreword to the 26th Financial Stability Report (FSR) released on Thursday, the Governor said in spite of formidable global headwinds, India’s external accounts remain well-cushioned and viable. “Amid such global shocks and challenges, the Indian economy presents a picture of resilience. Financial stability has been maintained. Domestic financial markets have remained stable and fully functional.
The banking system is sound and well-capitalised,” said the Governor. “The non-banking financial sector has also withstood these challenges. Stress test results presented in this issue of the FSR indicate that banks would be able to withstand even severe stress conditions, should they materialize,” he added.
The report, which reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the resilience of the financial system, highlighted the improvement in asset quality of the banks.
Despite significant global spillovers, asset quality, profitability, capital and liquidity buffers in the Indian banking system provide comfort, noted the report. Gross Non-Performing Assets (GNPA) of banks have maintained a declining trend. “The GNPA ratio of scheduled commercial banks (SCBs) fell to a seven-year low of 5% and net non-performing assets (NNPA) have dropped to ten-year low of 1.3% in September 2022,” said the report. “The provisioning coverage ratio (PCR) has been increasing steadily since March 2021, and reached 71.5% in September 2022,” it added.
Stress test results reveal that SCBs are well-capitalised and capable of absorbing macroeconomic shocks even in the absence of any further capital infusion by stakeholders. “The banking system is stable on the back of improving profitability and asset quality, with adequate levels of capital and liquidity buffers. Prudential regulations and improving domestic economic prospects have shored up the financials of the non-banking sector,” noted the report.
Banks credit growth (year-on-year), which started picking up during the second half of 2021-22, sustained its momentum and gathered pace to touch a decadal high of 17.4% as of December 16, 2022, a level last observed during 2011.
Macro stress tests for credit risk reveal SCBs would be able to comply with the minimum capital requirements even under severe stress scenarios. The system-level capital to risk weighted assets ratio (CRAR) in September 2023, under baseline, medium and severe stress scenarios, is projected at 14.9%, 14% and 13.1%, respectively.
Banks’ improving asset quality
1.3% Net NPAs of banks as of September 2022
5% Gross NPA of banks as of September 2022
71.5% Provisioning Coverage Ratio of banks as of September 2022
5.9% Gross NPA of NBFCs (non banking financial companies) as of September 2022
17.4% Credit growth of banks as of December 16, 2022