Overall risks to banking sector remained elevated due to asset quality concerns: RBI

The gross non-performing advances (GNPA) ratio and the stressed advances ratio of the banking sector increased between March 2017 and September 2017, said the Reserve Bank of India's FSR. 

The RBI's half-yearly Financial Stability Report released on late Thursday evening said, "The overall risks to the banking sector remained elevated due to asset quality concerns. Credit growth of scheduled commercial banks (SCBs) showed an improvement between March and September 2017, while public sector banks (PSBs) continued to lag behind their private sector peers."
 
The central bank, however, said that stress test suggests that in the baseline scenario, GNPAs of the banking sector may rise from 10.2% of gross advances in September 2017 to 10.8% in March 2018 and further to 11.1% by September 2018.

The other key observations of the RBI report are: 

SCBs’ return on assets (RoA) remained unchanged at 0.4% between March and September 2017 while PSBs have continued to record negative profitability ratios.

Overall, capital to risk-weighted assets ratio (CRAR) improved from 13.6 per cent to 13.9 per cent between March 2017 and September 2017.

The share of large borrowers both in total SCBs’ loans as well as GNPAs declined between March and September 2017.

GNPAs of the NBFC sector as a percentage of total advances increased between March 2017 and September 2017.

The network analysis indicates that the degree of interconnectedness in the banking system has decreased gradually since 2012. The joint solvency-liquidity contagion analysis shows that the losses due to default of a bank have declined.

From the perspective of larger financial system, SCBs continued to be the dominant players accounting for nearly 47 per cent of the bilateral exposure followed by asset management companies managing mutual funds (AMC-MFs), non-banking financial companies (NBFCs), insurance companies, housing finance companies (HFCs) and all-India financial institutions (AIFIs).

It may be noted that the FSR reflects the overall assessment on the stability of India’s financial system and its resilience to risks emanating from global and domestic factors. The Report also discusses issues relating to development and regulation of the financial sector.