Today (July 24), in its 21st issue of the Financial Stability Report (FSR), the Reserve Bank said that their assessment made by Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability reflects a combination of fiscal, monetary and regulatory interventions on an unprecedented scale has ensured normal functioning of financial markets in response to Covid-19.
The report said that the over-leveraged non-financial sector, rumbling global geopolitical tensions and economic losses on account of the pandemic are major downside risks to global economic prospects. It adds that the actions embarked on by the financial sector regulators and the government to alleviate the impact of Covid-19 eased operational constraints and helped in maintaining market integrity and resilience in the face of severe risk aversion.
Bank credit which had considerably weakened during the first half of 2019-20 fell down further in the following period with the moderation becoming broad-based across bank groups, the report said.
The report enlightens that the capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks edged down to 14.8% in March from 15% in September last year while their gross non-performing asset (GNPA) ratio declined to 8.5% from 9.3% and the provision coverage ratio (PCR) improved to 65.4% from 61.6%.
The report highlights that the macro stress tests for credit risk shows that the GNPA ratio of all SCBs may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario; the ratio may escalate to 14.7 per cent under a very severely stressed scenario. The report further emphasis that the network analysis reflects total bilateral exposures among entities in the financial system declined marginally during 2019-20; with the inter-bank market continuing to shrink and with better capitalisation of public sector banks (PSBs), there would be reduction in contagion losses to the banking system under various scenarios in relation to a year ago.
We’ll be facing the major challenges include pandemic-proofing large sections of society, especially those that tend to get excluded in formal financial intermediation as we go forward, it said.”