Reserve Bank of India (RBI) published its annual report and highlights “asset quality of banks and their preparedness requires close monitoring for higher provisioning for upcoming quarters.
Background
RBI in its semi-annual financial stability report earlier highlighted, bad loan ratio of banks could rise to 13.5% under baseline stress scenario by September 2021.
Key findings of report
- In its report, RBI cautioned “banks being lenders will have to provide true picture of bad loans after Supreme Court lifted interim stay on classifying non-performing assets (NPA) in March 2021.
- According to it, waiver of compound interest on all loan accounts opted for moratorium during March-August 2020 would put stress on financial health of banks.
- Gross NPA ratio of banks decreased from 8.2% in March 2020 to 6.8% in December 2020.
- Provision Coverage Ratio (PCR) of banks improved from 66.6% in March 2020 to 75.5 % by December 2020, because of prudent provisioning by banks above regulatory prescriptions on accounts availing moratorium and undergoing restructuring.
- Capital to risk-weighted assets ratio (CRAR) of banks increased to 15.9% by December 2020, in March it was 14.8%.
- Gross NPA ratio for non-banking financial institutions (NBFCs) increased from 6.8% in march to 5.7% in December 2020.
- Capital adequacy ratio of NBFCs increased from 24.8% in December 2020 from 23.7% in March.