On December 29, Friday, the Reserve Bank of India (RBI) released its Financial Stability Report (FSR). In September 2022, the gross non-performing asset (GNPA) ratio of scheduled commercial banks (SCBs) fell to a seven-year low of 5%.
According to the FSR report, net non-performing assets (NNPA) fell to a 10-year low of 1.3 percent in September 2022.
In terms of sectoral asset quality, the RBI’s Financial Stability Report noted that banks’ gross non-performing assets improved in most of the sectors. The GNPA ratio continued to improve in the industrial sector, but it remained elevated in the gems and jewellery and construction sub-sectors. However, asset quality in the personal loans segment improved in H1FY23, particularly for housing and vehicle loans.
In the 26th issue of FSR, RBI noted that the global economy is confronted with formidable headwinds with recessionary risks looming large. The combination of multiple shocks has clamped financial conditions and raised volatility in financial markets.
RBI’s FSR highlighted that the improvements in asset quality, a return to profitability, and strong capital and liquidity buffers of scheduled commercial banks (SCBs) are contributing to the buoyant demand for bank credit and early indications of a revival in the investment cycle.
In the foreword of the FSR, Shaktikanta Das, RBI Governor highlighted that “the results of the stress tests presented in this issue of the FSR imply that banks would be capable of coping with even severe stress conditions if they materialized. Furthermore, in spite of formidable global headwinds, India’s external accounts remain well-cushioned and viable.”
Macro stress tests for credit risk show that SCBs can meet the minimum capital requirements even under severe stress situations. Under the baseline, medium, and severe stress scenarios, the system-level capital to risk-weighted assets ratio (CRAR) in September 2023 is projected to be 14.9%, 14.0%, and 13.1%, respectively, the FSR stated.
The stress tests for open-ended debt mutual funds revealed no breaches in interest rate, credit, or liquidity risk limits. The consolidated solvency ratio of both life and non-life insurance companies remained above the stipulated minimum level.