As the stress in the banking sector continues, eleven public sector banks under RBI’s prompt corrective action framework may experience a further worsening of their bad loan problem.
As the stress in the banking sector continues, eleven public sector banks under RBI’s prompt corrective action (PCA) framework may experience a further worsening of their bad loan problem. “Eleven public sector banks under prompt corrective action framework (PCA PSBs) may experience a worsening of their GNPA ratio from 21.0 per cent in March 2018 to 22.3 per cent, with six PCA PSBs likely experiencing capital shortfall relative to the required minimum CRAR of 9 per cent,” RBI’s June 2018 Financial Stability Report (FSR) said.
RBI report also said even though tightening of liquidity conditions in the developed markets is being witnessed, coupled with expansionary US fiscal policy and strengthening US dollar, India’s economic growth remains on a positive note. Nevertheless, factors which over the last few years reinforced fiscal consolidation, inflation moderation and a benign current account deficit are changing, and this demands a caution, RBI’s June 2018 Financial Stability Report (FSR) said. The FSR reflects the overall assessment of the stability of India’s financial system and its resilience to risks emanating from global and domestic factors.
The central bank’s FSR states that despite some softness observed recently, the global growth outlook for 2018 remains positive. However, the spillover risk from advanced economies to their emerging peers has increased, the report also said. “Firming commodity prices, evolving geopolitical developments and rising protectionist sentiments pose added risks. On the domestic front, economic growth is firming up,” the report said.
RBI report also said that structural shifts are altering the pattern of credit intermediation and impacting market interest rates in the emerging markets.
Major risks and performance of financial institutions
The stress in the banking sector continues as gross non-performing advances (GNPA) ratio rises further.
The capital augmentation plan announced by the government will go a long way in addressing the potential capital shortfall, while also playing a catalytic role in credit growth at healthier banks.
Overall, the regulatory and supervisory measures bode well for allocative efficiency and financial stability in the medium term even if there is some short-term pain in the process.