After 7 years, banks’ balance sheets growing by double digits- RBI report

Banks’ balance sheet growing in double digits after 7 years

The Reserve Bank of India (RBI) stated in its annual report on trend and progress of banking in India that the health of Indian banks continued to improve in 2021–2022 with their balance sheet rising at double digits after a gap of seven years and their asset quality and capital position improving.

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Banks’ balance sheet growing in double digits: Key Points

• The banking regulator also called attention to the problem of slippages from restructured accounts.
• The amount of excess liquidity in the financial sector has decreased recently.
• In some cases, liquidity has even fallen into deficit.
• The RBI has promised to provide the productive sectors with financial support, though.
• Public sector banks (PSBs) in particular saw their balance sheets rise significantly, ensuring that they will continue to dominate the market for deposits and advances.
• The research states that PSBs control a market share of 58% for loans while accounting for 62% of scheduled commercial banks’ deposits.

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• According to the research, bank credit growth reached a 10-year high at the end of September 2022.
• The study made comments about the commercial banks’ profitability and stated that their return on equity (RoE) and return on assets (RoA) had increased to levels last seen in 2014–15.
• With gross non-performing assets (GNPAs) as a proportion of gross advances further declining in September 2022 to 5% from 5.8% in March 2022, the asset quality of Indian banks continued to improve.
• In the case of PSBs, written-off loans contributed mostly to the decline in NPAs in 2021–2022, whereas for private banks, loan upgrades were the main factor in improving asset quality.

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CAR and other findings od RBI Report

• The capital adequacy ratio (CAR) for the banking industry has been rising over the past few years, according to the research.
• The CAR of scheduled commercial banks was 16% as of September 30, 2022.
• Mark-to-market losses for banks could result from rising interest rates, but the report stated that data from a few banks indicated that, ceteris paribus, at the end of September 2022, banks would remain adequately capitalised even after making the necessary provisions for MTM losses due to a rise in yield.
• According to the research, growth in forward exchange contracts, acceptances, and endorsements drove contingent liabilities for all SCBs to reach 23%, the highest level in 11 years.
• Contingent liabilities climbed from 11% of the size of the balance sheet in 2020–21 to 13% in 2021–22.

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The research also revealed that, after dropping for two straight years, commercial banks boosted the number of new bank branches they opened by 4.6% between 2021 and 2022. New branches established in Tier 4, Tier 5, and Tier 6 centres were the main drivers of expansion.

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