RBI releases the “Financial Stability Report”

Gross non-performing assets ratio of scheduled commercial banks to increase13.5%

• Reserve Bank of India has released the Financial Stability Report till December – 2020
• This is the 22nd issue of financial stability report of the apex bank. It is released twice a year
• Report says that gross non-performing assets ratio of the scheduled commercial banks is to increase to 13.5%

Salient highlights of the Report

• The Gross non-performing assets ratio of the scheduled commercial banks is to increase to 13.5% by September 2021
• The net NPA and GNPA ratios continue to decline. The GNPA ratio stood at 7.5% in September 2020
• On the other hand, the NNPA the ratio stood at 2.1 % in September 2020 and at 3% in March 2020
• According to the financial stability report, the GNPA might increase to 13.5% by September 2021 under baseline scenario
• Under severe stress scenario, the GNPA ratio might increase to 14.8% by September 2021
• According to the July 2020 financial stability report prediction GNPA was to increase from 8.5 % in March 2020 to 12.5% by March 2021
• Also, the July 2020 financial stability report predicted that the GNPA ratio was to increase to 14.7 % under severe stress test scenario
• The loans to corporate have grown to multi quarter high of 5.65 % in March 2020 quarter
• The financial stability report says that the long-standing trend of private and public sector banks have been reversed
• According to the report, the private bank credit has grown rapidly and the public sector bank credit has declined

Further projection of Nonperforming assets

• The gross non-performing asset (GNPA) ratio of private sector banks (PVBs) and foreign banks (FBs) may increase from 4.6% and 2.5% to 7.9% and 5.4%, respectively, over the same period
• In the severe stress scenario, the GNPA ratios of PSBs, PVBs and FBs may rise to 17.6%, 8.8% and 6.5%, respectively, by September 2021
• “These GNPA projections are indicative of the possible economic impairment latent in banks’ portfolios, with implications for capital planning

What is “Financial Stability Report”?

• Financial Stability Report provides an assessment of the financial system and markets, and addresses emerging market financing
• It focuses on current market conditions, highlighting systemic issues that could pose a risk to financial stability and sustained market access by emerging market borrowers
• The Report draws out the financial ramifications of economic imbalances
• It contains, as special features, analytical chapters or essays on structural or systemic issues relevant to international financial stability
• The RBI Financial Stability Report is released by the Financial Stability and Development Council
• The idea of the council was mooted by Raghuram Rajan Committee in 2008

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