scorecardresearch
Follow Us:
Saturday, August 13, 2022

RBI: Bank NPA ratio at 6-year low, but fintechs expose system to new risks

Net non-performing assets (NNPA) ratio also fell by 70 bps during 2021-22 and stood at 1.7 per cent at the year-end, the Reserve Bank of India’s (RBI) Financial Stability Report (FSR) said. “Banks have reduced GNPA ratio through recoveries, write-offs and reduction in slippages.”

By: ENS Economic Bureau | Mumbai |
Updated: July 1, 2022 7:39:44 am
The provisioning coverage ratio (PCR) improved to 70.9 per cent in March 2022 from 67.6 per cent a year ago.

The asset quality of the banking system has improved with gross non-performing assets (GNPA) ratio declining from 7.4 per cent in March 2021 to a six-year low of 5.9 per cent in March 2022, the RBI said on Thursday.

Net non-performing assets (NNPA) ratio also fell by 70 bps during 2021-22 and stood at 1.7 per cent at the year-end, the Reserve Bank of India’s (RBI) Financial Stability Report (FSR) said. “Banks have reduced GNPA ratio through recoveries, write-offs and reduction in slippages.”

Under the assumption of no further regulatory reliefs as well as without taking the potential impact of stressed asset purchases by the National Asset Reconstruction Company Limited (NARCL) into account, stress tests indicate that GNPA ratio of all banks may improve from 5.9 per cent in March 2022 to 5.3 per cent by March 2023 under the baseline scenario driven by higher expected bank credit growth and declining trend in the stock of GNPAs, among other factors, the FSR said.

“If the macroeconomic environment worsens to a medium or severe stress scenario, the GNPA ratio may rise to 6.2 per cent and 8.3 per cent, respectively,” the report added.

Subscriber Only Stories
What three letters, part of the Lahore Conspiracy Case, will be part of a...Premium
Seven decades since Independence, it’s high time our films reflecte...Premium
India still fails its women, 75 years after IndependencePremium
Cricket chases the American dreamPremium

The provisioning coverage ratio (PCR) improved to 70.9 per cent in March 2022 from 67.6 per cent a year ago. The slippage ratio, measuring new accretions to NPAs as a share of standard advances at the beginning of the period, declined across bank groups during FY22. Write-off ratio fell for the second year running to 20.0 per cent in 2021-22.

Explained

Buffer to withstand shocks

According to the RBI’s report, banks as well as non-banking financial institutions have sufficient capital buffers to withstand shocks, and support from it during Covid helped banks arrest their GNPA ratio.

However, RBI Governor Shaktikanta Das said, “Like most other emerging market economies (EMEs) and even some advanced economies (AEs), the Indian economy is facing significant spillovers from the evolving global conditions.”

“The innate strength and resilience of our macro fundamentals is catalysing a steady recovery. The financial system is well-capitalised and returning to profitability. The corporate sector is deleveraged with stronger bottom lines,” he said in the report. The external sector is well-buffered to withstand the ongoing terms of trade shocks and portfolio outflows, he added.

Advertisement

Notwithstanding the challenges from global spillovers, the Indian economy remains on the path of recovery, though inflationary pressures, external spillovers and geopolitical risks warrant careful handling and close monitoring, the RBI said.

Cautioning about the financial technology (fintech) industry, the FSR said the advent of fintechs has exposed the banking system to new risks which extend beyond prudential issues and often intersect with other public policy objectives relating to safeguarding of data privacy, cyber security, consumer protection, competition and compliance with AML (anti-money laundering) policies.

Buy Now | Our best subscription plan now has a special price

Advertisement

The report also said BigTechs (big technology firms) can scale up rapidly and pose risk to financial stability, which can arise from increased disintermediation of incumbent institutions. Moreover, complex intertwined operational linkages between BigTech firms and financial institutions could lead to concentration and contagion risks and issues relating to potential anti-competitive behaviour.

Regulators and supervisors face a challenging balancing act between innovation-friendliness and managing risks to financial stability, which requires more engagement of stakeholders such as regulators, the fintech industry, and the academia to work towards common principles for management of fintech activities, it said.

The Indian fintech industry — which is amongst the fastest growing Fintech markets in the world — was valued at $50-60 billion in 2020 and is projected to reach $150 billion by 2025.

India has the highest fintech adoption rate globally (87 per cent), receiving funding of $8.53 billion (in 278 deals) during 2021-22.

Das: Cryptos a ‘clear danger’

RBI Governor Shaktikanta Das on Thursday termed cryptocurrencies as a “clear danger” and said that anything that derives value based on make-believe, without any underlying, is just “speculation under a sophisticated name”.

Advertisement

“While technology has supported the reach of the financial sector and its benefits must be fully harnessed, its potential to disrupt financial stability has to be guarded against. As the financial system gets increasingly digitalised, cyber risks are growing and need special attention,” Das said in the RBI’s FSR.

The RBI’s digital currency is expected to be unveiled in the coming months.

📣 Join our Telegram channel (The Indian Express) for the latest news and updates

For all the latest Business News, download Indian Express App.

  • Newsguard
  • The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.
  • Newsguard
First published on: 01-07-2022 at 04:00:42 am

Featured Stories

Advertisement
Advertisement
Advertisement
Advertisement