Any change in macroeconomic situation may deal a huge blow to commercial banks
Shishir Tripathi | December 30, 2014
Ringing the bell of caution for the banking sector, the Reserve Bank of India in its financial stability report says that there has been lackluster credit growth and overall risks to the banking sector remain unchanged.
The report can serve as the precursor to the bankers retreat to be held in Pune from January 2 where issues like consolidation and re-structuring of PSBs for better efficiency and capitalization needs, effective risk profiling and recovery mechanism will be deliberated upon.
While dwelling on the individual dimensions it has stated that though the liquidity position improved in the system, concerns remain on account of deterioration in asset quality.
The report raising serious concerns regarding the banking sector noted, “the growth of the Indian banking sector moderated further during 2013-14. Profitability declined on account of higher provisioning on banks’ delinquent loans and lackluster credit growth.”
On the working and status of the co-operative banks the report states that financial health of urban and rural co-operatives indicated divergent trends in terms of key indicators.
“While urban co-operative banks exhibited improved performance, the performance of primary agriculture credit societies and long term rural credit co-operatives remained a matter of concern with a further increase in their losses coupled with deterioration in asset quality.”
In respect to non banking finance companies (NFBC) the report while acknowledging the expansion in assets highlighted the deterioration of asset quality.
Raising serious questions over the asset quality of the commercial banks the report states that the asset quality of scheduled commercial banks may worsen from the current level if the macroeconomic conditions deteriorate drastically and banks are likely to fall short in terms of having sufficient provisions to meet expected losses under adverse macroeconomic risk scenarios.
Further while the capital to risk weighted assets ratio (CRAR) of the scheduled commercial banks at 12.8 per cent as on September 2014 has been marked as satisfactory by the apex bank, it has also been held by the report that “public sector banks would require substantial capital to meet regulatory requirements with respect to additional capital buffers.”
Finance minister Arun Jaitley has spoken about the need of infusing more capital to keep the banks in line with Basel-III norms. Recently, the finance ministry had asked the all public sector banks to submit capital raising plans. The offer has come following the Cabinet approval to reduction in government's stake in state-run lenders to 52 per cent
From Dependence to Self-Reliance: Mapping India’s Rise as a Global Superpower By Bimal Jalan Rupa Publications, 184 pages, Rs 695 Bimal Jalan, a former governor of the Reserve Bank of India (RBI), has been one of our finest commentators on econom
While many countries have been chasing to reach the carbon neutral status, only a few seem to be living up to their pledges as of now. The famous ’Paris Agreement’ of 2015 was glorified and celebrated that finally 196 countries have united with an intent to mitigate and reduce the greenhouse ga
The government this week announced the Tour of Duty or `Agnipath` scheme for the recruitment of soldiers in the armed forces. Under this scheme new soldiers will be recruited only for four years. This radical and far-reaching scheme has attracted mixed reactions from various quarters. While some officials
UPI has become an integral part of our daily lives now. We use it to buy groceries, we use it to send money to friends and family, we use it to purchase tickets, book shows, pay the cab driver, and a whole host of other things due to the ease and availability of such a platform at our fingertips. The best
Scorching Love: Letters from Mohandas Karamchand Gandhi to his son, Devadas By Gopalkrishna Gandhi and Tridip Suhrud Oxford University Press, 528 page, Rs 1495 Gandhi’s era happened to be an era when letter-writing was a primary mode of communica
Crediting the citizens of Mumbai for coming forward to help the police in combating the crisis situation due to Covid-19, Mumbai police commissioner Sanjay Pandey has said that Mumbai Police lost quite a few policemen during the pandemic but cumulative efforts, with citizens working hand in hand with the p