The Reserve Bank of India (RBI) today said, the recently announced monetary, regulatory and fiscal policy measures will help in the economic recovery that has been severely dented by the ferocious second wave of COVID-19. As per the 23rd issue of the Financial Stability Report (FSR), released by the RBI today, sustained policy support, benign financial conditions and the gathering momentum of vaccination are nurturing an uneven global recovery.
In its report the central bank flagged emerging threats to economic recovery from soaring commodity prices, new Covid variants and spillover effects from international markets. However, RBI said the financial system is resilient enough to deal with such jolts. The report also highlights the gross non-performing asset ratio is likely to increase to 9.80 percent in March 2022 as compared to 7.48 percent in March 2021.
The report said the ratio may increase to 11.22 percent under severe stress scenarios, even though banks have sufficient capital, both at the aggregate and individual level. RBI said banks will have to reinforce their capital and liquidity positions to fortify themselves against potential balance sheet stress as they respond to credit demand in a recovering economy.
The central bank in its report said, the capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) increased to 16.03 per cent.
The capital-to-risk weighted assets ratio measures a bank's financial stability by measuring its available capital as a percentage of its risk-weighted credit exposure. RBI said the provisioning coverage ratio (PCR) stood at 68.86 per cent in March 2021. Provisioning coverage ratio is the percentage of bad assets that the bank has to keep with them. Lower the asset quality, higher will be the provisioning coverage ratio.
In the FSR, RBI added that policy support has helped in shoring up financial positions of banks containing non-performing loans and maintaining solvency and liquidity. It said fiscal policy measures have helped curtail the solvency risk of financial entities, stabilise markets, and maintain financial stability.
