RBI releases annual banking report 2023, highlights trends and progress
By Puja Sharma
This Report presents the performance of the banking sector, including co-operative banks and non-banking financial institutions, during 2022-23 and 2023-24 so far.
Looking ahead in 2024, major Central Banks have indicated that monetary policy would remain watchful as inflation, despite easing, rules above target. In this environment, banks need to guard against credit losses although higher capital buffers and provision coverage ratio (PCR) provide cushions. In addition to regulatory capital and liquidity requirements, qualitative metrics such as enhanced disclosures, strong code of conduct and clear governance structures would contribute towards financial stability.
While the outlook for the global environment remains highly uncertain, the prospects for domestic economic activity appear bright. The Indian banking system is well positioned to improve further, with better asset quality, high capital adequacy and robust profitability. The financial indicators of NBFCs are also set to strengthen further, underpinned by adequate capital, increased provisions and improved asset quality. Financial stability is being underpinned by corporates’ stronger financials and deleveraging of their balance sheets. Against this backdrop, this chapter outlines a broad-brush view of the challenges facing banking and non-banking sectors, and the way forward.
The Indian banking system and NBFCs remain sound and resilient, backed by high capital ratios, strengthening asset quality and robust earnings growth. Looking ahead, given the increasing interconnectedness between banks and NBFCs, the latter should focus on broad basing their funding sources and reduce over dependence on bank funding.
Banks and non banks both, need to bring in greater empathy in their customer services. Concerted efforts by all stakeholders are required to protect the banking system and the payments system from the risks of fraud and data breaches emanating from cyber threats. Overall, banks and NBFCs need to further strengthen their balance sheets through robust governance and risk management practices to meet the growing aspirations of the Indian economy.
Key Highlights:
- The consolidated balance sheet of scheduled commercial banks (SCBs) in 2022-23 expanded by 12.2%, driven by credit to retail and services sectors; deposit growth also picked up, although it trailed credit growth.
- The capital to risk weighted assets ratio (CRAR) of SCBs was 16.8% at end-September 2023, with all bank groups meeting the regulatory minimum requirement and the common equity tier 1 (CET1) ratio requirement.
- The improvement in asset quality of banks that began in 2018-19 continued during 2022-23 and H1:2023-24, with gross non-performing assets (GNPA) ratio at 3.2% at end-September 2023.
- The consolidated balance sheet of non-banking financial companies (NBFCs) expanded by 14.8% in 2022-23, led by double digit credit growth. Profitability and asset quality of the sector also improved in 2022-23 and in H1:2023-24, even as the sector remained well-capitalised with CRAR higher than the regulatory requirement.
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