Gross NPA ratio of banks fell to six-year low of 5.9% in March: RBI – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/indicators/gross-npa-ratio-of-banks-fell-to-six-year-low-of-5-9-in-march-rbi/articleshow/92570831.cms?utm_source=ETTopNews&utm_medium=HPTN&utm_campaign=AL1&utm_content=23

Synopsis

Signalling that on the back of adequate capital buffers and improving asset quality levels, the Indian banking system is well-positioned to support economic growth, the Reserve Bank of India in its Financial Stability Report for June said that in March 2022, the gross net performing assets’ ratio fell to a six-year low of 5.9%.

Signalling that on the back of adequate capital buffers and improving asset quality levels, the Indian banking system is well-positioned to support economic growth, the Reserve Bank of India in its Financial Stability Report for June said that in March 2022, the gross net performing assets’ ratio fell to a six-year low of 5.9%.

It also noted that the bank credit grew in double-digits after a long hiatus.

The support measures provided by the regulator during the COVID-19 pandemic aided in arresting GNPA ratios of SCBs even with the winding down of regulatory reliefs.

Stress tests by the RBI indicate that it may improve to 5.3% by March 2023, driven by higher expected bank credit growth and a declining trend in the stock of GNPAs, among other factors, the central bank said.

Further, the Capital to Risk-weighted Assets Ratio (CRAR) of Scheduled Commercial Banks (SCBs), which has been on a rise since March 2020, rose to a new high of 16.7% in March 2022.

“Macro-stress tests for credit risk reveal that SCBs are well-capitalised and all banks would be able to comply with the minimum capital requirements even under adverse stress scenarios,” the report said.

Capital and liquidity buffers have now built up well above regulatory requirements and the SCBs are seeing a modest return to profitability.

“The innate strength and resilience of our macro fundamentals are catalysing a steady recovery. The financial system is well-capitalised and returning to profitability. The corporate sector is deleveraged with stronger bottom lines. The external sector is well-buffered to withstand the ongoing terms of trade shocks and portfolio outflows,” RBI Governor Shaktikanta Das said.

“Notwithstanding the challenges from global spillovers, the Indian economy remains on the path of recovery, though inflationary pressures, external spillovers and geopolitical risks warrant careful handling and close monitoring,” Das further said in the RBI’s 25th FSR.

Governor Das notes that the risks of stagflation are rising and that it is now transitioning from a risk scenario to a baseline scenario.

“Stagflation risks are mounting for EMEs and advanced economies (AEs)alike as tightening financial conditions threaten to restrain the pace of growth with inflationary pressures.”

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