While the commercial banking system has mostly continued to solidify its strengths, the NBFC segment appears to be bearing the laggard shocks of the pandemic.
The Indian commercial banking system and financial sector have been able to weather the economic after-effects of the pandemic, revealed the Economic Survey 2021-2022. Despite the hit to incomes and revenue that the pandemic brought, the commercial banking sector as a whole has seen its share of bad loans decline once again. The survey also highlighted that despite the waves of the pandemic affecting the country, the nation’s banking system has been able to keep its non-performing assets (NPAs) contained.
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The gross non-performing assets (GNPA) ratio, which is calculated based on the total gross advances of all Scheduled Commercial Banks (SCBs), has continued to decline since 2018-2019. The ratio of GNPAs has come down to 6.9 percent at end-September 2021, while the net non-performing assets (NNPA) ratio also declined to 2.2 percent at the same period, compared to 7.5 percent in end-September 2020 and 6 percent at end-FY18, respectively, according to the Economic Survey.
The GNPA ratio for public sector banks also saw a decline to 8.6 percent at end-September 2021. But at the same time, some stress can be seen through the stressed advances ratio of SCBs. The stressed advances ratio increased by 6 basis points (bps) to 8.5 percent at the end-September 2021 over the past year.
The capital to risk-weighted asset ratio has also seen improvement, the survey noted. “Simultaneously, the Capital Adequacy Ratio has continued to improve since 2015-16. The capital to risk-weighted asset ratio (CRAR) of SCBs increased from 15.84 percent at end-September 2020 to 16.54 percent at end-September 2021 on account of improvement for both public and private sector banks,” read the report.
The banking sector also saw its balance sheets swell in terms of credit, with significant growth over the past year. Bank credit has seen a growth of 9.2 percent in December 2021 from 5.3 percent in April 2021.
Public sector banks are continuing to see profitability ratios increase as their RoE and RoA continued to be positive for the period ending September 2021.
“The economic shock of the pandemic has been weathered well by the commercial banking system so far, even if some lagged impact is still in the pipeline,” the survey showed.
However, at the same time, non-banking financial companies (NBFCs) have continued to struggle. Credit growth has remained slow for the sector with total credit increasing from Rs 27.53 lakh crore in March 2021 to Rs 28.03 lakh crore in September 2021. The GNPA ratio has also increased for NBFCs, standing at 6.55 percent at end-September 2021 compared to 6.06 at end-March 2021.
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(Edited by : Thomas Abraham)