Posted by 
RBI Governor Shaktikanta Das said “the financial system in India remains sound”. Nonetheless, in the current environment, the need for financial intermediaries to proactively augment capital and improve their resilience has acquired top priority. “In the evolving milieu, while risk management has to be prudent, extreme risk aversion would have adverse outcomes for all,” Das said.
Among the bank groups, GNPA ratio of public sector banks may increase from 11.3 per cent in March 2020 to 15.2 per cent by March 2021 under the baseline scenario.
“Bank-level stress test results show that 23 banks16 with a share of 64.5 per cent in banks total assets might fail to maintain the required CRAR under the scenario of 3 SD shock to the GNPA ratio, the RBI’s FSR said. In such an extreme shock scenario, the CRAR of all the 18 PSBs is likely to go down to 9 per cent, it said.
“Given the fact that impact of moratorium is still uncertain and evolving, the exact nature of how the same will play out on the quality of banking assets is difficult to ascertain accurately,” the RBI said on the coming quarters.
Sectorally, the quality of bank loans to services sector worsened in March 2020. The GNPA ratio of the retail loan sector also edged up. Among major sub-sectors within industry, NPA ratios in respect of construction and gems and jewellery sectors swelled up in March 2020. On the other hand, the infrastructure sector (with a share of 36.2 per cent in bank credit to the industrial sector), basic metals (11.3 per cent) and electricity (17.5 per cent) have shown a perceptible decline in NPA ratios. This has implications for aggregate asset quality of the banking sector, the RBI said. “The pandemic has the potential to amplify financial vulnerabilities, including corporate and household debt burdens in the case of severe economic contraction,” it said.
The RBI said central government finances are likely to suffer some deterioration in 2020-21, with fiscal revenues badly hit by Covid-19-related disruptions even as expenditures come under strain on account of the fiscal stimulus. For State finances, the additional burden of lower federal transfers may accentuate downside risks to the outlook, it said.
Bank credit, which had considerably weakened during the first half of 2019-20, slid down further in the subsequent period with the moderation becoming broad-based across bank groups.
The capital to risk-weighted assets ratio of commercial banks edged down to 14.8 per cent in March 2020 from 15 per cent in September 2019, while their GNPA ratio declined to 8.5 per cent from 9.3 per cent and the provision coverage ratio PCR improved to 65.4 per cent from 61.6 per cent over this period.