Mumbai: Banks have a capital buffer and liquidity that is strong enough to hold the future shock because the impact of the pandemic on their balance sheet is not as severely projected before, a report from the Bank of India’s reserve (RBI).
Financial Stability Report was published two years by the RBI on behalf of the Stability and Financial Development Board, regulator umbrella group which provided the health overview of the Indian financial system.
The report said the bank’s gross performance assets could rise to 9.8% of total assets in March 2022 of 7.48% at the end of March this year with baseline scenarios and 11.22% below severe stress scenarios.
The projection is far more not pessimistic than the report released in January, where the RBI said that bad loans could multiply in a very stressful scenario.
“The capital buffer and liquidity are quite formidable to hold back the future shocks, because the stress test presented in this report shows,” Governor of RBI Shaktikanta Das, wrote in the introduction to the report.
He also said there was a new risk that appeared on the horizon, including the potential of future waves of the Pandemic Coronavirus, international commodity prices and inflationary pressures and increased instance of data violations and cyber attacks.
The report shows that Indian banks, which have brought a significant bad loan burden for several years, managed to reduce bad loans to 7.5% in March 2021, compared with 8.5% in March 2020 despite the challenges of Pandemics.
“Unprecedented policy support has contained bank balance disorders in India despite dents in economic activities caused by waves of pandemic,” said the report.
Lenders also have enough capital even under stress scenarios, it’s stated.
RBI also said that the risk of downside remained, especially from loans given to small and medium enterprises.
Loan growth that is subdued can also have a negative impact on the level of clean interest income, he added.