Banking Beyond Boundaries: Trends and Triumphs in the Indian Financial Sphere
In
December 2023, the Reserve Bank of India published a report detailing the state
and advancement of banking in the country. As Per section 36(2) of the Banking
Regulation Act, 1949, it is a statutory
publication. The performance of the banking industry, which includes
non-banking financial institutions and cooperative banks, is shown in this
report for the first half of 2023–24 and for the years 2022–2023 (until
September 23). The report's principal highlights are listed below.
1. The
Capital-to-Risk weightage Assets Ratio (CRAR) of scheduled commercial banks
(SCBs) was 16.8% at the end of September 2023, according to the report, and all
bank groups complied with the common equity tier 1 (CET1) ratio requirement as
well as the regulatory minimum requirement. The capital ratio requirement of
banks in relation to their risk-weighted assets is known as the CRAR
(risk-weighted assets are loans). Another name for CRAR is the Capital Adequacy
Ratio. Therefore, 9% plus 2.5% (the capital conservation buffer, or additional
capital they must retain) is the minimal regulation requirement for CRAR. Out
of this 9%, 1.5% is AT1, 2% is AT2, and 5.5% is CET1.
|
CET
1- Common Equity Tier 1 |
5.5% |
It
is the most liquid kind of capital that the bank has to keep with themselves Eg:
Undistributed Profits |
|
AT1-
Additional Tier 1 |
1.5% |
AT1
capital is released when banks require money |
|
AT2-
Additional Tier 2 |
2% |
AT2
capital is used when banks are insolvent |
So,
as per the report foreign banks maintain a high CRAR and private banks maintain
more CRAR than public sector banks. Overall, the scheduled commercial banks
maintain 16.8% CRAR meeting the minimum regulatory requirement.
2. As
of September's end, Indian banks' asset quality was still improving, with the
Gross Non-Performing Asset Ratio (GNPA) falling to a record-breaking 3.2%. As
indicated by GNPA ratios, asset quality has been steadily increasing from 2018
to 2019 and into 2022-2023. At the end of March '23, the Scheduled Commercial
Banks' GNPA ratio fell to 3.9%, and by the end of September '23, it had further
decreased to 3.2%. Better asset quality is indicated by a lower gross
non-performing asset ratio.
3. The
consolidated balance sheet of the scheduled commercial banks (excluding RRBs)
grew by 12.2% in 2022-23, the highest in 9 years driven by credit to retail and
service sectors; deposit growth also picked up, although it trailed credit
growth. The combined balance sheet of the Urban Co-operative banks expanded by
2.3% in 2022-23, driven by loans and advances. Their capital buffers and profitability
improved through 2022-23. Further, the consolidated balance sheet of
Non-Banking Financial Corporations expanded by 14.8% in 2022-23, led by
double-digit credit growth. Additionally, profitability and asset quality of
NBPCs also improved in 2022-23 and in the first half of 2023-24, even as the
sector remained well capitalized with CRAR higher than the regulatory
requirements. Higher net interest income and lower provisioning boosted net
interest margin and profitability in 2022-23.
These
are the main highlights of the report released by the Reserve Bank of India on
trends and progress of banking in India.
Reference
· https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57001
Comments
Post a Comment