Banks' exposure to better-rated larger borrowers in decline: RBI
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The exposure of banks to better-rated large borrowers is declining and signs of stress are being observed in the MSME and retail sectors, said that RBI in its recently released Financial Stability Report for July 2021.
"While banks' exposures to better rated large borrowers are declining, there are incipient signs of stress in the micro, small and medium enterprises (MSMEs) and retail segments," the report read.
The credit flow from banks and capital expenditure of corporates remains muted within the domestic financial system, says the central bank. The demand for consumer credit across both banks and non-banking financial companies (NBFCs) has also dampened. The risk profile of retail borrowers is deteriorating. Macro tests indicate that under the baseline scenario, the gross non-performing asset (GNPA) ratio of scheduled commercial banks (SCB) may increase from 7.48 per cent in March 2021 to 9.8 per cent by March 2022.
In case of a severe stress scenario, the GNPA may rise to 11.22 per cent, although SCBs have sufficient capital, both at the aggregate and individual level, even under stress. In March 2021, the capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) increased to 16.03 per cent and the provisioning coverage ratio (PCR) at 68.86 per cent.
Sustained policy support together with further strengthening of capital buffers by banks and other financial institutions are vital amidst the pandemic, RBI Governor Shaktikanta Das wrote in his foreword for the report.