Pandemic threatens to result in balance sheet impairments, capital shortfalls at lenders: RBI Guv
Mumbai: Reserve Bank Governor Shaktikanta Das said the COVID-19 pandemic “threatens” to result in balance sheet impairments and capital shortfalls at banks, especially once regulatory reliefs are rolled back.
In his foreword to the bi-annual Financial Stability Report (FSR), Das said easy liquidity and financing conditions have shored up the financial parameters of banks, but made it clear that the “available accounting numbers obscure a true recognition of stress”.
He asked banks to exploit the current conditions to augment capital and also alter their business models, which will help in the future.
The RBI had declared a six-month moratorium which ended in August and later announced a one-time loan recast package to help borrowers. Many banks, especially the private sector ones, have already raised safety capital in the early days of the pandemic.
Fiscal authorities are witnessing revenue shortfalls and the resultant expansion in the market borrowing programme of the government has “imposed additional pressures on banks”, Das said.
The disconnect between certain segments of financial markets and the real economy has been accentuating in recent times, he said, warning that the stretched valuations of financial assets pose risks to financial stability.
Das asked banks and financial intermediaries to be cognisant of these risks and spillovers in an interconnected financial system.
Financial stability is a precondition for supporting the mission of restoring economic growth and livelihoods, Das said, conceding that “we have been scarred by the COVID-19 pandemic”.
Banks gross NPA may rise to 13.5 pc by Sep 2021: RBI FSR
Mumbai: Banks’ gross non-performing assets may rise to 13.5 per cent by September 2021, from 7.5 per cent in September 2020 under the baseline scenario, according to Financial Stability Report (FSR) released by the Reserve Bank of India.
If the macroeconomic environment worsens into a severe stress scenario, the GNPA ratio may escalate to 14.8 per cent, the report said.
“The stress tests indicate that the GNPA ratio of all scheduled commercial banks (SCBs) may increase from 7.5 per cent in September 2020 to 13.5 per cent by September 2021 under the baseline scenario,” the FSR report added.
Among the bank groups, public sector banks’ (PSBs) GNPA ratio of 9.7 per cent in September 2020 may rise to 16.2 per cent by September 2021 under the baseline scenario, it noted.
The gross non-performing asset (GNPA) ratio of private sector banks (PVBs) and foreign banks (FBs) may increase from 4.6 per cent and 2.5 per cent to 7.9 per cent and 5.4 per cent, respectively, over the same period.
In the severe stress scenario, the GNPA ratios of PSBs, PVBs and FBs may rise to 17.6 per cent, 8.8 per cent and 6.5 per cent, respectively, by September 2021, the report said.
“These GNPA projections are indicative of the possible economic impairment latent in banks’ portfolios, with implications for capital planning,” it added.