Economic Survey: Banks took Covid shock well but some impact is yet to come

According to the survey, the banking system is well capitalised and the overhang of NPAs seem to have structurally declined even allowing for some lagged impact of the pandemic

The Indian banking system has weathered the economic shock of the pandemic well so far but there is some lagged impact in the pipeline, said the Economic Survey of  2021-22.

According to the survey, the banking system is well capitalised and the overhang of Non-Performing Assets (NPAs) seem to have structurally declined even allowing for some lagged impact of the pandemic.

The gross NPAs ratio of the banking system has declined from 11.2 per cent in 2017-18 to 7.5 per cent at the end-September 2020 to 6.9 per cent at end-September 2021. Similarly, the net NPAs ratio has declined from its highs of 6 per cent in 2017-18 to 2.2 at end- September 2021.

But, over the last year (September 2020 – September 2021), the stressed advances ratio of scheduled commercial banks increased from 7.9 per cent at end-September 2020 to 8.5 per cent at end-September 2021. And, the restructured Standard Advances (RSA) ratio of the banks increased from 0.4 per cent to 1.5 per cent during the same period.

“Various Covid-19 related dispensations/moratoriums provided with respect to asset quality contributed towards increase in restructured assets and as a result, stressed advances ratio for the banking system increased at end-September 2021”, the economic survey said.

The Reserve Bank of India (RBI) had given a six-month moratorium on repayments of loans from March 2020 to August 2020. It had also come out with two restructuring schemes wherein distressed borrowers were allowed to restructure their loans to avoid economic complications.

While the gross NPA ratio of the public sector banks decreased from 9.4 per cent at end-September 2020 to 8.6 per cent at end-September 2021. But the RSA ratio of such banks increased marginally from 10.0 per cent to 10.1 per cent during the same period on account of rise in restructured advances.

The economic survey also said that the capital adequacy ratio of the banks has continued to improve since 2015-16, with capital to risk weighted asset ratio (CRAR) of the banks increasing from 15.84 per cent at end-September 2020 to 16.54 per cent at end-September 2021 on account of its improvement for both public and private sector banks.

While the improvement in CRAR levels of public sector banks was due to capital infusion by the government alongside fund raising from the markets, the private sector banks have tapped capital from market sources. Based on the capital position as on September 30, 2021, all public sector and private sector banks maintained the Capital Conservation Buffer (CCB) well over 2.5 per cent.