The Financial Stability Report released by RBI projects banks’ gross NPAs rising to 8.1% of total assets by September 2022 from 6.9% in Sept 2021 under a baseline scenario and to 9.5% under severe stress scenario.
Findings of the Report:
Balance sheets of banks remain strong and capital and liquidity buffers are being bolstered to mitigate future shocks.
Emerging signs of stress in micro, small and medium enterprises (MSME) as also in the micro finance segment call for close monitoring of these portfolios going forward.
The RBI Governor has also flagged inflation concerns and the below-par performance of private investment and consumption in the Indian economy.
The report also expresses doubt over the government’s ability to contain fiscal deficit at the budgeted 6.8% this fiscal year.
the overall provisioning coverage ratio moved up from 67.6 per cent in March 2021 to 68.1 percent in September 2021.
Checking the Financial Stability:
The RBI checks the resilience of banks' balance sheets to unforeseen shocks emanating from the macroeconomic environment using macro-stress tests through which impairment and capital ratios are projected over a one-year horizon under a baseline and two adverse (medium and severe) scenarios.
Terms:
Non Performing Asset:
A non-performing asset (NPA) is a classification used by financial institutions for loans and advances on which the principal is past due and on which no interest payments have been made for a period of time.
In general, loans become NPAs when they are outstanding for 90 days or more, though some lenders use a shorter window in considering a loan or advance past due. Lenders usually provide a grace period before classifying an asset as non-performing.
Gross NPA and Net NPA:
GNPA: GNPA stands for gross non-performing assets. GNPA is an absolute amount. It tells you the total value of gross non-performing assets for the bank in a particular quarter or financial year as the case may be.
NNPA: NNPA stands for net non-performing assets. NNPA subtracts the provisions made by the bank from the gross NPA. Therefore net NPA gives you the exact value of non-performing assets after the bank has made specific provisions for it.
Capital to Risk Weighted assets ratio:
CRAR also known as Capital Adequacy Ratio (CAR) is the ratio of a bank's capital to its risk.
CRAR is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.
The Basel III norms stipulated a capital to risk-weighted assets of 8%.
Provision Coverage Ratio:
Provisioning Coverage Ratio (PCR) is essentially the ratio of provisioning to gross non-performing assets (NPA) and indicates the extent of funds a bank has kept aside to cover loan losses.
