Finance minister Nirmala Sitharaman on Friday reviewed state-run banks’ preparedness to deal with any pandemic-induced disruption in the wake of a spike in Covid cases over the past few days. At the same time, the banks have been asked to keep satiating the credit appetite of the economy.

The top executives who attended the virtual meeting told the minister that public-sector banks (PSBs) are “adequately capitalised and prepared for any stress scenarios in future”, the finance ministry said in a statement.

The meeting came days after the Reserve Bank of India, in its Financial Stability Report, projected that gross non-performing assets (NPAs) of commercial banks may jump to 9.5% by September 2022 in a severe stress scenario from 6.9% a year earlier. However, the central bank also noted that banks have sufficient capital, both at the aggregate and individual levels, even under stress conditions to cope with the shock.

Emerging signs of stress in the MSME and microfinance segments call for close monitoring of these portfolios going forward, the report suggested.
At Friday’s meeting, Sitharaman said business outlook is progressively improving in spite of the global headwinds and the Omicron spread and underlined that contact-intensive sectors may require more support from banks to help them fight against the pandemic.

Credit demand, the minister said, is expected to pick up on account of growth in retails segments, improvement in overall macroeconomic prospects and improving financial health of borrowers.

Non-food bank credit growth accelerated to 7.1% in November, against 5.9% a year before and 6.9% in the previous month. However, credit to industry grew only 3.8% in November, even on a favourable base.

The capital to risk-weighted assets ratio (CRAR) of commercial banks, dominated by PSBs, stood at an impressive 16.6% as of September 2021, well above the regulatory requirement. Similarly, their provisioning coverage ratio stood at a decent 68.1% by September.

PSBs, particularly, are adequately capitalised, too, as their CRAR hit 14.4% as of September 2021, against the requirement of 11.5% (including capital conservation buffer). Their CET1 capital also stood at 10.79% as on September 2021, against the regulatory requirement of 8%.

PSBs recorded net profit of Rs 31,820 crore in FY21, the highest in the last five years. Importantly, in the first half of this fiscal, they registered net profits of Rs 31,145 crore, almost equal to that of the whole of FY21. They also recovered as much as Rs 5,49,327 crore from bad assets in the last 7 years.

On Friday, Sitharaman also reviewed various steps initiated by state-run banks in implementing pandemic-related measures initiated by the government and the RBI.
The minister appreciated the success of the Rs 4.5 lakh crore credit guarantee scheme ECLGS and called for further concerted efforts to support all those sectors that face interruption due to continued onslaught of Covid-19 pandemic. She also asked bankers to continue supporting the agriculture, retail and MSME sectors.