RBI Report 2020-21: The Reserve Bank of India or RBI has recently released its annual report on the financial performance of the country. In that report the central bank noted that despite the ongoing Covid-19 pandemic that shook the country with its deadly second wave in 2021, the financial performance of banks turned out to be the best in recent years. The asset quality of the banking sector has improved year-on-year, RBI said as the gross non-performing asset ratio (GNPA) for scheduled commercial banks (SCBs) fell to 6.9 per cent from 7.3 per cent at the end of September. percent in March, and 8.2 percent in FY20, which is the last financial year.
According to RBI’s ‘Report on the Trend and Progress of Banking in India’ for 2020-21, the financial performance of SCBs in 2020-21 was marked by a significant increase in profitability as their incomes remained stable but expenditure declined. I.
“It was quite the opposite during the last five years during which
PSBs suffered losses and PVB profitability was declining,” the RBI report said, adding, “Banks’ total income remained stagnant, despite a marginal decline in its largest component i.e. interest income, characterized by lower credit offtake and interest rates. In the environment, total income of banks remained stable. rates.”
However, the decline was helped by a sharp rise in investment income, while business earnings also picked up, d, as banks booked profits on declining government securities yields.
“The moderation in GNPA ratio of banks beginning in 2019-20 continued to reach 7.3 per cent during the period under review till the end of March 2021. Provisional supervisory data suggest further moderation at a ratio of 6.9 per cent by the end of September. 2021. During 2020-21, this correction was driven by less slippage, partly due to asset classification stagnation. With the decline in delinquent assets, their provisioning requirements also declined and the net NPA ratio of PSBs and PVBs declined from the previous year,” the RBI said in its report.
From 2018, write-off was the major recourse to reduce GNPA
Explaining the reason behind this shortfall in 2020-21, the central bank said. The lowest GNPA was recorded in September at 6.9 per cent. In line with the improvement in asset quality, the ratio of standard assets to total advances of SCBs increased in 2020-21, mainly due to better performance of PVBs.
The capital ratio of banks was also boosted by the slowdown in accumulation of risk weighted assets (RWAs) of both private and public sector banks.
“The share of large borrowing accounts (exposure of Rs 5 crore or more) in total advances declined to 51 per cent at the end of March 2021, from 54.2 per cent a year ago. Their contribution to total NPAs also declined from 75.4 per cent to 66.2 per cent during the same period. The Special Mention Account-2 (SMA-2) ratio, indicating impending stress, has increased across bank groups since the outbreak of the pandemic,” the RBI report said.
The news of decline in NPAs comes as good news as the banking sector in India is synonymous with economy. The banking sector serves as the backbone, despite much borrowing by large corporates now occurring outside the banking system, such as the bond market and foreign markets. Therefore, banks need to be in good shape for the economy to function. The latest RBI report proved the skeptics wrong, who had predicted that the health of banks would deteriorate due to bad loans amid the pandemic.
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