Mumbai: The second wave of pandemic has a dent recovery, but with rapid reduced cases, economic activities have increased since May-end, said the Governor of RBI Shaktikanta Das.
In the introduction to the Financial Stability Report (FSR) released on Thursday, the DAS said the hit on the bank’s balance sheet and performance because the pandemic was far less than projected before.
According to the stress test conducted by the RBI, a bad loan of the banking sector or gross non-performing assets (GNPA) can increase from 7.48% by 2021 to 9.8% on March 2022 below the baseline scenario, and 11.22% below severe.
stress scenario.
In January, RBI said that GNPA in September 2021 would be around 13.5% below the baseline scenario and 14.8% under severe stress situation.
The RBI has warned banks at risks arising from loans with small and retail businesses.
“While bank exposure to better assess large borrowers decreases, there are signs of new pressure into micro, small and medium enterprises (MSMEs) and retail segments,” said the report.
The central bank has explained the difference between January’s projections and current reports, stating that the FSR was previously based on bad loan estimates because there was a traffic jam against loans classified as NAS.
In March 2021, the Supreme Court lifted the loan bar classified as NPA and actual data available, allowing RBI to conduct stress tests based on regular methodology.
In the FSR, the RBI has been, for the first time, struggling to show that the scenario is not forecast and only ‘shows the possibility of latent economic disorders in the Bank’s portfolio with implications for capital planning’.
According to the watershed, the financial system will play a major role in leading economic recovery.
“In situations where economic activities are disturbed by pandemics, the financial system can lead in creating conditions for the economy to recover and develop,” he said.
Although improved prospects, the RBI called on sustainable policy stimulus as supply constraints, the increase in commodity prices and major changes in the global capital flow raises challenges.
“Hurried withdrawal of policy stimulus to support growth before sufficient coverage of vaccination drives can cause macro-financial resistance and have harmed unwanted consequences,” FSR said.
It also highlights cyber attacks and data violations as among the risks that arise.
Indicates that the bank has enough capital to meet the challenges arising from Pandemi, RBI said that the stability indicators for banks in connection with health, profitability and liquidity increased in March 2021 compared to the previous year.
Even in the worst scenario, the bank still has a capital adequacy of 10.7%, RBI said.
In the report, the central bank highlighted the risks caused by a large technology financial company, which also struck a non-financial business line with the structure of the Opaque’s government.
These companies have the potential to become dominant players and can overcome the scale limit by exploiting network effects.
RBI said that one way to deal with this is to use an entity-based mix and regulatory based on activity.