RBI’s Financial Stability Report for December 2021 – Bank NPAs may go beyond 8% by September 2022,

Reserve Bank released the 24th issue of the Financial Stability Report (FSR) today. FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the resilience of the financial system.

RBI says in financial stability report that stronger recovery hinges on revival of private investment and private consumption; both are below pre-pandemic levels.

Retail-led credit growth faces headwinds due to two factors -

-The first is an increase in delinquencies in the consumer finance portfolio.
-The second factor is a slowdown in the new credit segment, a key driver of consumer credit growth in the pre-pandemic period.

The RBI's financial stability report has highlighted the disconnect between the real economy and equity market yet again.

Highlights:

• The global economic recovery has been losing momentum in the second half of 2021 in the face of resurfacing COVID-19 infections, the new variant Omicron, supply disruptions and bottlenecks, elevated inflationary levels and shifts in monetary policy stances and actions across advanced economies and emerging market economies.
• On the domestic front, progress in vaccination has enabled the recovery to regain traction after the debilitating second wave of the pandemic, notwithstanding signs of slowing pace more recently; the corporate sector is gaining strength and bank credit growth is improving.
• The capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) rose to a new peak of 16.6 per cent and their provisioning coverage ratio (PCR) stood at 68.1 per cent in September 2021.
• Macro stress tests for credit risk indicate that the gross non-performing asset (GNPA) ratio of SCBs may increase from 6.9 per cent in September 2021 to 8.1 per cent by September 2022 under the baseline scenario and to 9.5 per cent under a severe stress scenario. SCBs would, however, have sufficient capital, both at the aggregate and individual levels, even under stress conditions.
• Emerging signs of stress in micro, small and medium enterprises (MSME) as also in the micro finance segment call for close monitoring of these portfolios going forward.

Please click here for the full report: RBI releases the Financial Stability Report, December 2021

Source: rbi.org.in & Business Standard