RBI Undertook An Array Of Policy Measures To Mitigate Effects Of COVID-19: Report

The Reserve Bank of India released the Report on Trend and Progress of Banking in India 2019-20, a statutory publication in compliance with Section 36 (2) of the Banking Regulation Act, 1949. This Report presents the performance of the banking sector, including co-operative banks, and non-banking financial institutions during 2019-20 and 2020-21 so far. The broad theme of this year's report is the impact of COVID-19 on banking and non-banking sectors, and the way forward.

During 2019-20 and first half of 2020-21, scheduled commercial banks (SCBs) consolidated the gains achieved after the turnaround in 2018-19, the report noted. SCBs' gross non-performing assets (GNPA) ratio declined from 9.1 per cent at end-March 2019 to 8.2 per cent at end-March 2020 and further to 7.5 per cent at end-September 2020. Capital to risk weighted assets (CRAR) ratio of SCBs strengthened from 14.3 per cent at end-March 2019 to 14.7 per cent at end-March 2020 and further to 15.8 per cent at end-September 2020, partly aided by recapitalisation of public sector banks and capital raising from the market by both public and private sector banks. Net profits of SCBs turned around in 2019-20 after losses in the previous two years; in H1:2020-21, their financial performance was shored up by the moratorium, standstill in asset classification and ploughing back of dividends.

The Reserve Bank report further stated that the central bank undertook an array of policy measures to mitigate the effects of COVID-19; its regulatory ambit was reinforced by legislative amendments, giving it greater powers over co-operative banks, non-banking financial companies (NBFCs), and housing finance companies (HFCs); and it also undertook a series of initiatives to bolster its supervisory framework. The recovery process gained traction with the resolution of large accounts through the Insolvency and Bankruptcy Code (IBC); the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI) channel also aided the process of recovery. The balance sheet growth of Urban Co-operative Banks (UCBs) moderated in 2019-20 on lower deposit accretion and muted expansion in credit; while their asset quality deteriorated, increased provisioning resulted in net losses.

The performance of state co-operative banks improved, both in terms of profitability and asset quality. The consolidated balance sheet of NBFCs decelerated in 2019-20 due to near stagnant growth in loans and advances although some improvement became visible in H1:2020-21; notwithstanding a marginal deterioration in asset quality, the NBFC sector remains resilient with strong capital buffers.

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