States Banks Adequately Capitalised To Absorb Economic Shocks: RBI

The recent release of the Reserve Bank of India’s (RBI) Financial Stability Report on 28 December highlights the robust capitalisation of scheduled commercial banks, indicating their resilience against potential macroeconomic shocks over the next year.

According to the report, a baseline projection suggests a decline in the aggregate Capital to Risk-weighted Assets Ratio (CRAR) of 46 major banks from 16.6 per cent in September 2023 to 14.8 per cent by September 2024. Even in scenarios of medium or severe stress, this ratio is anticipated to remain above the required minimum capital threshold.

The report, issued biannually, provides an overview of the nation's financial sector. It outlines that despite potential stress scenarios, no scheduled commercial bank (SCB) is expected to fall below the mandated minimum capital requirement of 9 per cent over the next year.

The Common Equity Tier 1 (CET1) ratio of these 46 SCBs is projected to decrease from 13.6 per cent in September 2023 to 12.2 per cent by September 2024 in the baseline scenario. Even under severe stress, while a reduction of 360 basis points (Bps) is expected, all banks are predicted to maintain a CET1 ratio above the regulatory norms of 5.5 per cent.

As per the report, the Gross Non-Performing Asset (GNPA) ratio across all SCBs might improve to 3.1 per cent by September 2024, compared to the current level of 3.2 per cent. However, in medium or severe stress scenarios, this ratio could potentially increase to 3.6 per cent and 4.4 per cent, respectively.

Looking at different bank groups, the report suggests that the GNPA ratios for Public Sector Banks (PSBs) may rise from 4.4 per cent in September 2023 to 5.1 per cent by September 2024. Similarly, for Private Sector Banks (PVBs) and Foreign Banks (FBs), the ratios may increase from 2.1 per cent to 3.6 per cent and from 1.6 per cent to 1.8 per cent, respectively, in severe stress scenarios.