NPAs Down, Credit Growth Picking Up: RBI

By Moderator June 28, 2019 13:38

Gross non-performing assets in the banking system have declined for the second consecutive half year, while credit growth is picking up, the Reserve Bank of India (RBI) said in the half-yearly Financial Stability report.

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  • Gross NPA ratio declined to 9.3% as of March 2019. It was 10.8% in September 2018 and 11.5% in March 2018.
  • Gross NPAs could further decline to 9% by March 2020, the macro stress tests indicated.
  • Following capital infusion by the government in public sector banks, the overall capital adequacy ratio of commercial banks improved from 13.7% in September 2018 to 14.3% in March 2019, with state-run banks’ CAR improving from 11.3% to 12.2% during the period.
    • However, there was a marginal decline in the CAR of private sector banks.
  • Credit growth of public sector banks was at 9.6% while private leaders continue to the robust growth of 21%. Overall credit growth marginally improved to 13.2% in March 2019 from 13.1% in September 2018.
  • The provision coverage ratio (PCR) of all SCBs rose sharply to 60.6 percent in March 2019 from 52.4 percent in September 2018 and 48.3 percent in March 2018, increasing the resilience of the banking sector.
  • With the number of banks having more than 20% gross NPAs coming down in March 2019, RBI said this implied a broader improvement in asset quality.

Provision Coverage Ratio

  • Provisioning is a part of the RBI’s prudential regulation norm.
  • Under-provisioning, banks have to set aside or provide funds to a prescribed percentage of their bad assets.
  • The percentage of bad asset that has to be ‘provided for’ is called provisioning coverage ratio.
  • The provisioning coverage ratio is the percentage of bad assets that the bank has to provide for (keep the money) from their own funds –most probably profit.

Capital Adequacy Ratio

  • The capital adequacy ratio (CAR) is a measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures.
  • The capital adequacy ratio, also known as capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and promote the stability and efficiency of financial systems around the world.
  • Two types of capital are measured:
    • Tier-1 capital, which can absorb losses without a bank being required to cease trading, and
    • Tier-2 capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

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By Moderator June 28, 2019 13:38