RBI: Report on trend & progress of banking in India 2019-2020

The Reserve Bank of India vide its publication dated 29^th December 2020 placed in its website the Report on trend and progress of banking in India 2019-2020 in pursuance of provisions of the Banking Regulations Act, 1949 as per details given below:

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0RTP2020_F3D078985540A4179B62B7734C7B445C9.PDF

Its 230 pages report is a treasure house of rare information on banks and the non-banking sector on account of the impact of COVID 19 and the way forward.

It is appropriate to reproduce some of its conclusions as under but a detailed study of the report is analyzed in my words thereafter:

• “During 2019-20 and the first half of 2020-21, scheduled commercial banks (SCBs) consolidated the gains achieved after the turnaround in 2018-19.
• Scheduled Commercial Bank’s (SCBs) gross non-performing assets (GNPA) ratio declined from 9.1 percent at end-March 2019 to 8.2 percent at end-March 2020 and further to 7.5 percent at end-September 2020.
• Net profits of SCBs turned around in 2019-20 after losses in the previous two years; in H1:2020-21, their financial performance was shored up by the moratorium, standstill in asset classification, and plowing back of dividends.
• The performance of state co-operative banks improved, both in terms of profitability and asset quality.
• The consolidated balance sheet of NBFCs decelerated in 2019-20 due to near stagnant growth in loans and advances although some improvement became visible in H1:2020-21; notwithstanding a marginal deterioration in asset quality, the NBFC sector remains resilient with strong capital buffers.
• The recovery process gained traction with the resolution of large accounts through the Insolvency and Bankruptcy Code (IBC); the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI) channel also aided the process of recovery.
• The balance sheet growth of Urban Co-operative Banks (UCBs) moderated in 2019-20 on lower deposit accretion and muted expansion in credit; while their asset quality deteriorated, increased provisioning resulted in net losses.”

Let us dive deep into the report to understand its nuances. Now, over to the main report for our enlightened intellect.

6 chapters adorn its main report as per details given below:

• Chapter I: Perspectives
• Chapter II: Global Banking Developments
• Chapter III: Policy Environment
• Chapter IV: Operations and Performance of Commercial Banks
• Chapter V: Developments in Co-operative Banking
• Chapter VI: Non-Banking Financial Institutions.

The following information may throw light on the detailed study of RBI over the innocuous-looking title:

1. List of tables – 85

2. List of charts – 109

3. List of appendix tables – 38

The above information is interspersed over the six chapters with varied and complex structure.

Let me introduce the names of some of the tables.

Loan moratorium, the balance sheet of SCBs, the profile of select liabilities and assets, cost of funds and return on funds by bank groups, return on assets and return on equity of SCBs, bank GroupWise, component-wise capital adequacy of SCBs, asset classification as per IRAC norms, classification of loan assets by bank GroupWise, frauds in various banks happened on the date of reporting/occurrence, bank Group Wise insured deposits, the financial performance of local area banks, the consolidated balance sheet of small finance banks, the financial performance of regional rural banks/Urban cooperative banks/abridged balance sheet of NBFCs/HFCs/AIFIs.

Similar information on the list of charts which appealed to me are given below:

Gross non-performing loans ratio, return on assets, capital to risk-weighted assets ratio, leverage ratio, market-based indicators of bank health, distribution of top 100 banks by Tier-1 capital, asset quality and profitability of top 100 banks, soundness of top 100 banks, select aggregates of SCBs/deposit growth of SCBs/growth in term deposits and CASA deposits, growth in borrowings, trends in credit rations, trends in banks investments, international liabilities and assets of banks, the impact of provisioning on profitability, capitalization of Indian banks, leverage and liquidity, the asset quality of banks. stress on large borrower accounts, the share of fraud cases banks group wise.

(Any serious-minded academicians/research divisions of SCBs or various departments of the central government and the state governments will be glad to look, study and interpret the results to suit their goals)

Let us look forward to the views of RBI on performances of SCBs and others in details:

• The Indian financial system, and banks, in particular, displayed resilience in 2019-20, with a strengthening of asset quality, capital positions, and profitability.
• In 2020-21, as policy support is rolled back, the impact of the COVID-19 pandemic may dent the health of the banks and non-banks.
• As of end-August 2020, around 40 percent of outstanding loans of the financial system (banks and NBFCs) availed moratorium.
• RBI asserts that an analysis of published quarterly results of a sample of banks (SCBs) indicates that their GNPA ratios would have been higher in the range of 0.10 percent to 0.66 percent at end-September 2020.
• Today’s news reports from Business Standard dated 31^st December 2020 gives prominence to the following information which will reflect the real position of nationalized banks in their efforts to gain more money from the central government than from all stakeholders of the investing community which may not look at the financial position of banks with sympathetic views due to massive frauds, increasing NPAs and failure to monitor diversion of funds of borrowers to non-productive purposes.
• “Preliminary estimates suggested that potential recapitalization requirements for meeting regulatory purposes as well as for growth capital may be to the extent of 150 basis points (bps) of the common equity tier I (CET I) ratio for the banking system.
• The Financial Stability Report (FSR), to be released shortly, will present an updated assessment of the GNPA and capital adequacy of SCBs under alternate macro stress test scenarios.
• While the Government has earmarked Rs. 20,000 crores in the first supplementary demands for grants for capital infusion in public sector banks (PSBs), they may raise more resources from the market as an optimal capital raising strategy.” Delay in the release of FSR is expected since the government may not like the present tone of RBI towards NPAs of nationalized banks, as per the newspaper reports. I do not have any views on this matter.
• Let us also confide about Small Finance Banks, Co-operative Banks (hogging limelights in non-payment of deposits for months together in some cases), and of course, NBFCs, particularly after the massive report of the IL&FS episode. Exact reporting in the words of the RBI report gives credibility to the real state of financial position of these institutions.
• Small Finance Banks: They continue to have significant exposure to unsecured advances even as they strive to diversify their portfolio. These banks have smaller low-cost current and saving account (CASA) deposit bases. While the prevailing easy liquidity conditions facilitate borrowings and refinance on which they rely, SFBs may need to focus on their bottom lines as and when financial conditions tighten.
• What about payment banks? With elevated levels of unemployment and reverse migration still to be corrected for, these banks’ sources of income may come under strain. Most of these banks are yet to break even, mainly due to high initial infrastructure costs. The generation of capital funds in the absence of credit products poses a challenge for them.
• Co-operative banks: The recent economic downturn resulting in loan defaults/repayment moratorium have increased their capital requirements. Raising additional capital at a reasonable cost has emerged as a key challenge for them.
• Now to NBFCs which too corner the headlines due to their failure to meet the requirements of all their stakeholders. The impact was relatively higher on NBFCs since they were unable to function during the initial phase of lockdown. On the supply side, sources of funds, especially for small and midsized NBFCs, dwindled on the reduced risk appetite of banks for low rated and unrated exposures.

What about my observations on the vast multitude of information provided by RBI?

1. Loan moratorium information from page 24 of the main report.

Corporate			Total
	%age of total customers	%age of total o/s	%age of total custs	%age of total o/s
PSBs	24.96	36.70	34.80	41.33
UCBs	43.13	90.15	43.45	64.09
SCBs	18.02	30.44	43.75	37.91
System	31.31	34.28	45.62	40.43

The above information is self-explanatory. You can have your own inference.

2. Anyone will like to know about deposits, capital, or loans and advances information about all SCBs?

Pub. Sec. banks	2019	2020(amount in Crores of rupees)
Capital	51060	72040
Deposits	8486215	9048420
Investments	2702033	2940636
Loans and advances	5892667	6158112
Private sector banks
Capital	21344	26866
Deposits	3770013	4159044
Investments	1222045	1293031
Loans and advances	3327328	3625154
System
Capital	154427	190802
Deposits	12886643	13975095
Investments	4322464	4689842
Loans and advances	9676183	10301914

The above information speaks by itself and you may interpret it accordingly. All figures show an increasing trend, in my view.

With the increasing frauds or frequent mention of frauds in newspapers recently, I am interested to look at the available information.

(amount in Rs crores)

Frauds (Since frauds under advances generate a lot of interest, the following information is given).

2004-05	2016-17(amount in Rs crores)
Frauds
Advances
No	1564	2,320
Amount	672	20,556

Figures have been provided only up to 2016-17 but the total amounts of frauds have gone up by 8.86 times during the period of nearly 12 years. The position further deteriorated during the recent years enforcing technological updates of system monitoring both at individual banks level as well as at RBI level.

Let us view the information on page 178 from Appendix Table V.4:

Indicators of Financial Health: District Central Co-operative Banks (At end-March)

Let us concentrate on information pertaining to the various regions and also the best and the least performance of them.

(Amounts for years are shown below in Rs Crores)
(2017-18)  (2018-19)			2018(%) 2019%
Region	No	Profit	Loss	Profit	Loss	(NPA to Loans ratio)
Northern	73	11463	12114	12132	14329	7.9 9.2
Eastern	57	20164	1142	21607	3679	9.7 9.3
Central	104	28239	28526	29880	21608	18.6 19.3
Southern	80	60907	36587	51012	5807	7.8 7.6
Western	49	53586	10950	55224	53164	14.3 16.0
All India	363	174360	89318	169856	98588	11.1 11.8

All over the country, NPA to Loans ratio has shown an increasing trend in 2019 as compared to 2018 though two regions have shown a downward turn indicating better recovery.

Let us have an understanding of NBFCs’ performance over the last three years.

Years	2018	2019	2020
Total income	250004	277589	312326
Total expenditure	200469	254428	264387
Cost to income %	80.2	91.7	84.7

Let us hear what RBI projects about the likely future performance of the banks.

“With the moratorium coming to an end, the deadline for restructuring proposals is fast approaching and with the possible lifting of the asset quality standstill, banks’ financials are likely to be impacted in terms of asset quality and future income. Going forward, banks will have to adapt and adjust to the rapidly evolving economic landscape due to these challenges and also the entry of niche players and emerging financial technologies.”

Let us finalize our journey through this massive 230-page report with some of the immediate steps taken by RBI to face the most uncertain COVID 19 under various heads. These actions taken are contained on pages 42-44.

These measures have fallen under the following heads for understanding their importance:

• Monetary and liquidity measures
• Regulatory measures
• Credit delivery and financial inclusion
• Supervisory measures.
• A list of 38 measures adorn pages 42-44 and one can easily refer to them depending upon the area of interest and keenness to learn the details.

Conclusion

The best way to conclude this massive report of RBI is to reproduce its statement on page 42 which is given as under:

“In the face of COVID-19 related disruptions, the Reserve Bank acted swiftly with several conventional and unconventional policy measures aimed at enabling normal functioning of financial markets and institutions, facilitating and incentivizing bank credit flows, supporting monetary transmission and easing of financial stress in specific sectors and markets and increasing the systemic liquidity.”

Let us learn the above measures of RBI in light of the historic and most troublesome pandemic COVID 19 whose effects on the world economy is still under debate and consequences are unknown but the judgment of the world towards Indian efforts to tackle its evil effects and the most dynamic and timely actions taken and are still being taken, supervised and making the effects least painful for the Indian economy by Indian government and RBI are being lauded immensely. I am proud to be at this time to be benefitted by these admirable efforts.

Privacy statement

I have clearly informed at the beginning that the above article culled out of the RBI report on banking is a view as envisioned by me. None of us, myself, RBI, or taxguru.in intend giving any legal advice or technical guidance. One should refer to experts to learn or interpret the RBI report.