Banking

Banking sector sees improvement in health during FY20, says Reserve Bank of India

Read more at m.economictimes.com

MUMBAI: The performance of the Indian banking sector improved in fiscal 2020, when lenders reported a profit on an aggregate basis after two years of losses, the central bank said in its yearly assessment report.

The banking system’s bad loans fell and capital buffer improved, but banks need to be vigilant about competition from nimbler tech rivals, the Reserve Bank of India said.

The RBI also expressed concern over rolling back the policy support given to banks to deal with the Covid-19 pandemic in the last eight months.

“In 2020-21, as policy support is rolled back, the impact of the Covid-19 pandemic may dent the health of the banks and non-banks,” the regulator said, as part of its report on Trends and Progress of Banking in India. The RBI said the turnaround of the banking system depended on the pace of the economy returning to a growth path.

“Improvement in the health of the banking sector henceforth hinges around the pace and shape of economic recovery,” it said. “The challenge is to rewind various relaxations in a timely manner, reining in loan impairment and adequate capital infusion for a healthy banking sector.”

The RBI said at the end of August 2020, moratorium had been availed of on around 40% of the outstanding loans of the financial system, including banks and non-bank lenders. Moratorium was higher among MSMEs customers, the data showed – as much as 78% of such customers availed of the facility.

Its preliminary estimates also suggested that potential recapitalisation requirements for meeting regulatory purposes as well as for growth capital might be to the extent of 1.5 percentage point of the common equity tier-1 ratio for the banking system.

On the asset quality front, the RBI said data on gross non-performing assets of banks were yet to reflect the stress, obscured under the asset quality standstill with attendant financial stability implications.

An analysis of published quarterly results of a sample of banks indicates that their gross NPA ratios would have been higher in the range of 0.10% to 0.66% at the end of September 2020, according to the report.

“The Covid-19 provisioning and ploughing back of dividends would help shield their balance sheets from emanating stress to a certain extent,” the regulator said.

Read more at m.economictimes.com

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