News Excerpt:

The Reserve Bank of India has published its 29th issue of the Financial Stability Report (FSR) June 2024.

More detail about news

• The Financial Stability Report (FSR) is a half-yearly publication, with contributions from all financial sector regulators. 
• It presents the collective assessment of the Sub Committee of the Financial Stability and Development Council on current and emerging risks to the stability of the Indian financial system.

Key Highlights:

• The global economy is encountering heightened risks due to prolonged geopolitical tensions, high public debt, and slow progress in reducing inflation.
• Despite these challenges, the global financial system has remained resilient, maintaining stable financial conditions.
• The Indian economy and financial system continue to be robust and resilient, underpinned by macroeconomic and financial stability.
• Improved balance sheets have enabled banks and financial institutions to support economic activity through sustained credit expansion.
• As of the end of March 2024, scheduled commercial banks (SCBs) had a capital to risk-weighted assets ratio (CRAR) of 16.8% and a common equity tier 1 (CET1) ratio of 13.9%.
• SCBs’ gross non-performing assets (GNPA) ratio fell to a multi-year low of 2.8%, with the net non-performing assets (NNPA) ratio at 0.6% as of the end of March 2024.
• Macro stress tests for credit risk indicate that SCBs would meet minimum capital requirements, with the system-level CRAR projected at 16.1%, 14.4%, and 13.0% in March 2025 under baseline, medium, and severe stress scenarios, respectively.
• These scenarios are conservative assessments under hypothetical shocks and should not be interpreted as forecasts.
• Non-banking financial companies (NBFCs) remain healthy, with a CRAR of 26.6%, a GNPA ratio of 4.0%, and a return on assets (RoA) of 3.3% at the end of March 2024.

Bad Loans Hit 12-Year Low

• RBI reported that the proportion of bad loans at banks could drop to 2.5% by the end of FY25 under a baseline stress scenario, indicating an improvement in the sector's health.
• Last fiscal year, the gross bad loan ratio reached a 12-year low of 2.8%, although it could rise to 3.4% under severe stress.

Bad Loan of State-owned banks

• State-owned banks continue to have the highest bad loan ratio though this has decreased compared to a year ago.
• As of March 31, the gross non-performing asset (NPA) ratio for public sector banks was 3.7%, while it stood at 1.8% for private sector banks and 1.2% for foreign banks.
• The report noted a continuous decline in bad loans since March 2020, attributed to fewer new NPAs and increased write-offs.

Unsecured Consumer Loan

• The report flagged concerns regarding retail loans that require close monitoring.
• In November, RBI increased the risk weights assigned to unsecured consumer credit, such as personal loans and credit card dues. “Overall asset quality of outstanding credit showed an improvement, except for personal loans," the report noted.
• It highlighted high delinquency levels among borrowers with personal loans under ₹50,000 and a relatively high vintage delinquency rate of 8.2% for personal loans.
• Vintage delinquency measures the percentage of loan accounts that become delinquent within a year of onboarding.

Status of Indian banks

• Improved balance sheets have enabled banks and financial institutions to support economic activity through sustained credit expansion.
• As of the end of March 2024, scheduled commercial banks (SCBs) had a capital to risk-weighted assets ratio (CRAR) of 16.8% and a common equity tier 1 (CET1) ratio of 13.9%.
• SCBs’ gross non-performing assets (GNPA) ratio fell to a multi-year low of 2.8%, with the net non-performing assets (NNPA) ratio at 0.6% as of the end of March 2024.
• Macro stress tests for credit risk indicate that SCBs would meet minimum capital requirements, with the system-level CRAR projected at 16.1%, 14.4%, and 13.0% in March 2025 under baseline, medium, and severe stress scenarios, respectively.
• These scenarios are conservative assessments under hypothetical shocks and should not be interpreted as forecasts.
• Non-banking financial companies (NBFCs) remain healthy, with a CRAR of 26.6%, a GNPA ratio of 4.0%, and a return on assets (RoA) of 3.3% at the end of March 2024.