RBI monitoring stress in retail, MSME segments: Deputy governor MK Jain

On comparing the results of banks from the pre-Covid days with their numbers in March 2021, one can see an improvement in all the parameters with regard to the capital adequacy ratio, Jain said.

The Reserve Bank of India (RBI) has taken note of the rising stress in the retail and small enterprises categories, and is closely monitoring it, deputy governor MK Jain said on Friday.

Jain said the regulator was cognisant of the stress levels in the retail and the micro, small and medium enterprises (MSME) segments. “Yes, there is a visibility on a little bit of stress from the past data, but definitely it’s not alarming. We are constantly engaged with the regulated entities, particularly the outlier banks and the outlier NBFCs (non-banking financial companies) and we also conduct stress tests,” Jain said.

The deputy governor pointed out that in the past, the central bank had advised all regulated entities to improve their provisions in the wake of Covid, and banks have heeded that call. On comparing the results of banks from the pre-Covid days with their numbers in March 2021, one can see an improvement in all the parameters with regard to the capital adequacy ratio, Jain said.

“There’s a reduction in gross NPA (non-performing asset), net NPA as well as the slippages ratio. There is an improvement in the provision coverage ratio and there is also an improvement in profitability. So, the sector is better positioned today than what it was before the Covid onset,” Jain said.

The RBI’s financial stability report for July 2021 observed that consumer credit deteriorated after the loan moratorium programme came to an end in September 2020. Consumer credit portfolios of non-public sector banks (PSBs) are seeing incipient signs of stress, the central bank said, citing data from credit bureau TransUnion Cibil. The delinquency ratio in aggregate consumer credit for private banks doubled to 2.4% in January 2021 from 1.2% in January 2020, and for NBFCs and housing finance companies (HFCs), it rose to 6.7% from 5.3% over the same period.

In the April-June quarter of FY22 as well, banks and non-bank lenders saw their retail and MSME NPA ratios worsening as collections were hit during the second wave. The high demand for restructuring from the two borrower categories has also been a cause for concern.

Lenders have time until the end of September 2021 to recast accounts hit by Covid, and the numbers are set to rise, by some estimates. In a recent report, Icra analysts said the restructured book for NBFCs is expected to move up to 4.1-4.3% by March 2022, while the same for the HFCs is estimated to go up to 2-2.2%. The overall sectoral restructured book is, therefore, expected to double to 3.1-3.3% by March 2022 from 1.6% in March 2021, Icra said.