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Flagging the continuing stress in the banking sector, the Reserve Bank of India on Tuesday said the gross NPAs of banks may rise from 11.6 per cent in March 2018 to 12.2 per cent by March 2019.
Macro-stress tests on public sector banks under the prompt corrective action framework (PCA) suggest worsening of their GNPA ratio from 21 per cent in March 2018 to 22.3 per cent by March 2019, with six PSBs under PCA likely experiencing capital shortfall, it said.
In its 17th Financial Stability Report, the RBI said the system level capital-to-risk-weighted assets ratio (CRAR) may come down from 13.5 per cent to 12.8 per cent during the period.
“However, the capital augmentation plan announced by the government will go a long way in addressing potential capital shortfall, as also play a catalytic role in credit growth at healthier banks.
“...Furthermore, governance reforms would not only improve the financial performance of banking sector, but also help reduce operational risks,” said the report, adding that the country’s financial system remains stable.
In recent years, the share of PSBs in credit delivery has been coming down, from 73 per cent (of total bank credit of scheduled commercial banks) as on March 31, 2008 to 65 per cent on March 31, 2018. Private sector banks have been stepping up to meet the demand.
Structural shifts are altering the pattern of credit intermediation and impacting market interest rates. These developments call for greater vigilance on the domestic macroeconomic front to reinforce financial stability.
The share of non-banking channels in the total flow of financial resources to the commercial sector increased from 10 per cent as on March 31, 2008 to 18 per cent in mid-March 2018. According to the FSR, impairment in the asset quality of the 11 PSBs under the PCA remains high, necessitating sizeable provisioning and de-leveraging, thereby constraining not only their capacity to lend but also the desirability of their lending and acceptance of public deposits.
Economic growth
Even as economic growth is firming up, the report said conditions that buttressed fiscal consolidation, inflation moderation and a benign current account deficit over the last few years are changing, thereby warranting caution.
Given the ongoing churning in currency markets and a febrile geopolitical atmosphere, the the report cautioned that access for emerging market financial institutions to the US dollar liquidity pool may be fraught with challenges.
Referring to the gross fiscal deficit, which is budgeted to decline to 3.3 per cent of GDP in 2018-19 from 3.5 per cent in the preceding year,the report said there could, however, be challenges on the fiscal front unless there is a buoyancy in tax receipts and/or a restraint on expenditure.
ALSO READ: Operational risks at PSBs on the rise: RBI
Impairment in asset quality of PSBs under prompt corrective action stays high: RBI
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