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RBI monitoring stressed assets situation in retail and MSME segments: Deputy Governor M.K. Jain

On a day when the Reserve Bank of India (RBI) monetary policy committee decided to leave rates unchanged to support economic growth, senior officials of the central bank said they are closely monitoring the increase in stressed assets in the retail and MSME segments. The RBI has taken note of the rising stressed assets situation in the banking sector, particularly in the retail and micro, small and medium enterprises segments (MSME), said M.K. Jain, one of the deputy governors at the Reserve Bank of India. However, there is no alarming situation at this point. State Bank of India, while announcing its quarterly results, had said last week that slippages came in from the small and medium enterprises (SMEs) and home loan segments. The SME sector is a little sticky, but the bank is seeing better traction for restructurings that are coming from the sector, it said. The central bank also said it was closely looking at cooperative banks which have seen multiple failures and breaches of corporate governance in recent times.

Apparently, there is visibility on a little bit of stress from the past data, but it’s not alarming. RBI is constantly engaged with the regulated entities, particularly the outlier banks and the outlier NBFCs (non-banking financial companies) and also conduct stress tests.

The deputy governor pointed out that in the past, the central bank had advised all regulated entities to improve their provisions in the wake of COVID, and banks have heeded that call. On comparing the results of banks from the pre-Covid days with their numbers in March 2021, one can see an improvement in all the parameters with regard to the capital adequacy ratio.

There’s a reduction in gross NPA (non-performing asset), net NPA as well as the slippages ratio. There is an improvement in the provision coverage ratio and there is also an improvement in profitability. So, the sector is better positioned today than it was before the COVID onset. The RBI’s financial stability report for July 2021 observed that consumer credit deteriorated after the loan moratorium Programme came to an end in September 2020. Consumer credit portfolios of non-public sector banks (PSBs) are seeing incipient signs of stress, the central bank said, citing data from Credit Bureau TransUnion Cibil. The delinquency ratio in aggregate consumer credit for private banks doubled to 2.4% in January 2021 from 1.2% in January 2020, and for NBFCs and housing finance companies (HFCs), it rose to 6.7% from 5.3% over the same period.

In the April-June quarter of FY22 as well, banks and non-bank lenders have reported an increase in stress levels in their retail and MSME NPA ratios as collections were hit during the second wave. The high demand for restructuring from the two borrower categories has also been a cause for concern. Higher stress is visible in retail loans and loans given to small companies.

Lenders have time until the end of September 2021 to recast accounts hit by COVID, and the numbers are set to rise, by some estimates. Earlier this year, the RBI had set up the committee with the mandate of reviewing the current regulatory/supervisory approach and recommending measures to strengthen the sector after the amendments to the Banking Regulation Act, 1949 which gave the central bank more powers over cooperative lenders.

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