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Financial Stability Report: RBI

  • 28 Dec 2019
  • 4 min read

Why in News

The Reserve Bank of India has released the 20th issue of the Financial Stability Report (FSR).

Key Points

    • Credit Growth
      • Bank credit is the total amount of funds a person or business can borrow from a bank.
      • Scheduled Commercial Banks’ (SCBs) credit growth remained subdued at 8.7% year-on-year (y-o-y) in September 2019, down from 13.2% in March 2019.
      • Private Sector Banks (PVBs) registered double digit credit growth of 16.5% in September 2019.
    • Expected Increase in Gross Non-Performing Asset (GNPA) Ratio
      • SCB’s Gross Non-Performing Asset (GNPA) ratio of banks may increase to 9.9% by September 2020 from 9.3% in September 2019.
      • Public Sector Banks’ (PSB) GNPA ratios may increase to 13.2% by September 2020 from 12.7% in September 2019.
      • For private banks, the ratio may climb to 4.2% from 3.9%, under the stress scenario.
      • Foreign banks’ (FB) GNPA ratio may increase to 3.1% from 2.9% in September 2019.

  • Non-Performing Asset
    • Non-Performing Assets (NPA) refer to a classification for loans or advances that are in default or are in arrears on scheduled payments of principal or interest.
    • In most cases, debt is classified as non-performing, when the loan payments have not been made for a minimum period of 90 days.
    • Gross non-performing assets are the sum of all the loans that have been defaulted by the individuals who have acquired loans from the financial institution.
    • Net non-performing assets are the amount that is realized after provision amount has been deducted from the gross non-performing assets.
  • All banks’ Capital to Risk-weighted Assets Ratio (CRAR) improved to 15.1% in September 2019 from 14.3% in March 2019, following the recapitalisation of PSBs by the government.
    • CRAR is a measurement of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures. It is also known as the Capital Adequacy Ratio (CAR).
    • CAR = (Tier 1 Capital + Tier 2 Capital)/Risk weighted Assets
    • Tier-1 capital, or core capital, consists of equity capital, ordinary share capital, intangible assets and audited revenue reserves. Tier-1 capital is the capital that is permanently and easily available to cushion losses suffered by a bank without it being required to stop operating.
    • Tier-2 capital comprises unaudited retained earnings, unaudited reserves and general loss reserves. This capital absorbs losses in the event of a company winding up or liquidating
  • Provision Coverage Ratio (PCR) of all SCBs rose to 61.5% in September 2019 from 60.5% in March 2019 implying increased resilience of the banking sector.
    • Provisioning Coverage Ratio (PCR) refers to the prescribed percentage of funds to be set aside by the banks for covering the prospective losses due to bad loans.

Way Forward

  • The global economy confronted a number of uncertainties – a delay in the Brexit deal, trade tensions, oil-market disruptions and geopolitical risks – leading to significant deceleration in growth.
  • As regards the domestic economy, aggregate demand slackened in second quarter of 2019-20 further extending the growth deceleration.
  • Reviving the twin engines of consumption and investment while being vigilant about spillovers from global financial markets remains a critical challenge going forward.

Source: TH

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