Banks’ gross bad loans ratio fell to 7.5% at Sept-end: RBI

The Reserve Bank of India (RBI) today released a report on the performance of the banking sector during 2019-20 and 2020-21, so far. The report, Trend and Progress of Banking in India 2019-20, is based on the impact of Covid-19 on banking and non-banking sectors and the way forward.

During 2019-20 and first half of 2020-21, scheduled commercial banks (SCBs) consolidated the gains achieved after the turnaround in 2018-19.

The gross non-performing assets (GNPAs) ratio of scheduled commercial banks declined from 9.1% at end-March 2019 to 8.2% at end-March 2020 and further to 7.5% at end-September, the Reserve Bank of India (RBI) said on Tuesday.

The capital to risk-weighted assets ratio (CRAR) strengthened from 14.3% at end-March 2019 to 14.7% at end-March 2020 and further to 15.8% at end-September 2020, it said in a report submitted to the Ministry of Finance.

This was partly aided by recapitalisation of public sector banks and capital raising from the market by both public and private sector banks.

The RBI said net profits of banks turned around in 2019-20 after losses in the previous two years. In H1:2020-21, their financial performance was shored up by the moratorium, standstill in asset classification and ploughing back of dividends.

The central bank said it undertook an array of policy measures to mitigate the effects of Covid-19.

Its regulatory ambit was reinforced by legislative amendments, giving it greater powers over cooperative banks, non-banking financial companies (NBFCs) and housing finance companies (HFCs). It also undertook a series of initiatives to bolster its supervisory framework.

The recovery process gained traction with the resolution of large accounts through the Insolvency and Bankruptcy Code. The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (SARFAESI) channel also aided the process of recovery.

The RBI said balance sheet growth of urban cooperative banks moderated in 2019-20 on lower deposit accretion and muted expansion in credit. While their asset quality deteriorated, increased provisioning resulted in net losses. The performance of state cooperative banks improved -- both in terms of profitability and asset quality.

The consolidated balance sheet of NBFCs decelerated in 2019-20 due to near stagnant growth in loans and advances although some improvement became visible in H1:2020-21. Notwithstanding a marginal deterioration in asset quality, the NBFC sector remains resilient with strong capital buffers.

The Report also offered some perspectives on the evolving outlook for India’s financial sector.