Economic revival key to banks’ health

News:The Reserve Bank of India has released a report titled Trend and Progress of Banking in India 2018-19.

Facts:

Key Highlights from the report:

What are the positives in the Banking sector?

• The Indian banking sector’s financial parameters such as bad loans and capital adequacy have shown an improvement in recent times.
• In 2018-19, the asset quality of scheduled commercial banks turned around after a gap of seven years with the overhang of stressed assets declining and fresh slippages arrested.
• Besides,recapitalization had helped public sector banks in shoring up their capital ratios.
• Hence,as a result of declining provisioning requirement,the banking sector returned to profitability in the first half of 2019-20. 

What are the concerns according to the report?

• The overall health of the banking sector will depend on revival in economic growth.However,the GDP growth for the second quarter of the current financial year has dipped to a six-year low of 4.5%.
• Despite the improvement in some of the important parameters, the risk-averse nature among lenders was worrisome.
• Further,the waning of confidence among the borrowers is leading to credit slowdown and is affecting the overall economic activity. 

Recommendations:

• The capital infusion by the government in public sector banks is just not enough to meet the regulatory minimum.Hence,the banks might require more recapitalization.
• The financial health of PSBs should also be assessed by their ability to access capital markets rather than looking to the government as a recapitalizer of the first and last resort.