Page 9 - Banking Finance July 2020

RBI CORNER

expected to announce capital raising other banks, had infused Rs 10,000 not be that there was a rise in NPA.
plans going forward. crore as equity capital. SBI had also "The key takeaway is how banks are
approved investment of Rs 1,760 crore responding, The key takeaway as I said
The uncertainty on the asset quality of
banks remains high with almost 30-40 in Yes Bank's forthcoming follow-on is the need to focus on governance,
per cent of loan book across various public offer (FPO). focus more on risk management, focus
banks under moratorium announced Das said the regulator is engaged with more on raising capital," he said. Many
by the RBI. Gross NPAs are likely to rise Punjab & Maharashtra Cooperative banks, including SBI, ICICI Bank, Axis
to 11.3-11.6 per cent by March 2021 Bank (PMC Bank) stakeholders to find Bank and Yes Bank, had announced
plans to raise capital for strengthening
from an estimated level of 8.6 per cent a solution. "Reserve Bank is engaged
for March 2020, with a fresh gross slip- with all stakeholders to find out a work- their balance sheets.
page of 5.0-5.5 per cent of standard able solution, as losses are very high, He also highlighted improvement in
advances during FY2021, ICRA has eroding deposits by more than 50%," the key parameters of non-banking fi-
said. he said. The regulator had recently nancial companies (NBFCs). "The gross
doubled the withdrawal limit for the and net NPAs of NBFCs stood at 6.4%
RBI Governor asks banks customers of the troubled bank to Rs and 3.2% as on March 31, against 6.1%
1 lakh. cent and 3.3% as on March 31, 2019,"
to do Covid stress test he said. The CRAR for NBFCs, however,
Das highlighted that liquidity measures
RBI governor Shaktikanta Das said announced by the RBI since February declined marginally from 20.1% to
there was a 'necessity' to have 19.6% during 2019-20. "While the
this year aggregate to about Rs 9.57
recapitalisation plan for public sector lakh crore. "This is equivalent to about NBFC sector as a whole may still look
banks (PSBs) and private banks (PVBs) 4.7% of 2019-20 nominal GDP," he resilient, the redemption pressure on
to absorb shocks of Covid-19. In his said, adding that key parameters in the NBFCs and mutual funds need close
address at the State Bank of India (SBI) monitoring," Das added.
Banking & Economics conclave, the financial system had improved.
RBI governor said every financial insti- The overall capital adequacy ratio for RBI proposes entity to re-
tution needed to do a Covid-19 stress banks improved 50 basis points (bps) vive troubled banks
test. He said there is a need for legis- year-on-year (y-o-y) to 14.8% as on RBI governor Shaktikanta Das has
lative backing to have 'resolution cor- March 2020, compared to 14.3% in made a case for a resolution corpora-
poration' for dealing with revival of March 2019. The RBI governor said tion that will revive stressed banks as
stressed financial firms. capital to risk weighted assets ratio an alternative to the traditional prac-
(CRAR) of PSBs had improved 80 bps to
The setting up of a 'resolution corpo- tice of merging failed institutions with
ration' was earlier proposed by the 13% in March 2020, from 12.2% in stronger ones. A bill which proposed
government through financial resolu- March 2019. While the gross NPA ra- the corporation in 2017, was with-
tion and deposit insurance (FRDI) Bill, tio has improved 120 bps to 8.3%, net drawn following criticism of a clause
2017. However, the bill was later with- NPA ratio improved 80 bps to 2.9% y- that sought to share cost of revival
o-y as of March 2020.
drawn due to apprehensions among with depositors. "The traditional ap-
the public about the 'bail-in' clause of The provision coverage ratio (PCR) of proach has been to merge a failed bank
the bill. The clause had led to fears banks have improved from 60.5% in with a larger bank. While it does pro-
that customer deposits could be used March 2019 to 65.4% in March 2020, tect the depositor's interest it does pull
to bail out a failing bank. indicating higher resiliency in terms of down the balance sheet of the larger
The RBI governor also cited example risk absorption capacity. The profitabil- bank with which the failed bank is
ity of banks had also improved during merged," said Das, while responding to
of Yes Bank to emphasise handling of
weak institutions by the RBI. "The the year, Das said. a question from SBI chairman Rajnish
timely and successful resolution of Yes "The lockdown and anticipated post- Kumar on whether a resolution corpo-
Bank is an example," Das said. The lockdown compression in economic ration could address failures like Yes
government, along with the central growth may result in higher non-per- Bank, during SBI's online Economic
bank, had earlier approved a recon- forming assets (NPAs) and capital ero- Conclave recently.
struction scheme for Yes Bank in which sion of banks," he said. However, he Earlier in his speech, the governor said
State Bank of India (SBI), along with mentioned that the key takeaway can- that in the case of Punjab &

BANKING FINANCE | JULY | 2020 | 9