Signs of a turnaround: on RBI’s Financial Stability Report

Regulatory vigil should not ease after the half-yearly decline in banks’ gross NPA ratio

The fog(कोहरा/धूंधलापन) of bad loans shrouding(फेरबदल) the banking sector appears(प्रकट होता है/रूप लेना) to be lifting after a long period of sustained(निरंतर ) stress(तनाव). The Reserve Bank of India’s Financial Stability(स्थिरता ) Report reveals( पता चला) the first half-yearly decline(गिरावट/पतन) in the ratio(अनुपात) of gross non-performing assets(परिसंपत्तियों ) (GNPA) to advances since September 2015. The ratio across all scheduled commercial banks has eased to 10.8% as of end-September 2018, from 11.5% in March, with both public sector and private sector lenders(ऋणदाता/उधारदाताओं) posting drops in the keyindicator(सूचक) of bad loans. A stress test for credit risk at banks that models varying(विभिन्न/ levels(स्तरों) of macro-economic performance shows that for the baseline(आधारभूत) assumption(धारणा/कल्पना), the GNPA ratio would narrow to 10.3% by March 2019. This prompted RBI Governor Shaktikanta Das to prognosticate(भविष्य बतलाना) that the sector “appears to be on course to recovery”. Still, state-owned banks continue to have higher levels of bad loans than their private sector peers(साथियों) and are projected to show slower improvements(सुधार ) over the second half of the fiscal(वित्तीय/आर्थिक). The GNPA ratio for public sector banks (PSBs) is posited to only inch lower to 14.6% by March, from 14.8% in September. One reason is that PSBs have a disproportionately(बेढंगे तौर पर) higher share of bad loans from among largeborrowers(कर्जदारों), who accounted for almost 55% of loans advanced by all banks as of September. The GNPA ratio for this category at PSBs was 21.6%, compared with just 7% at private banks.

Interestingly, the RBI’s Prompt Corrective Action (PCA) framework, which attracted(आकर्षित ) criticism(आलोचना/समीक्षा) including(सहित) from a government appointee (नियुक्ति) on the central bank’s board, has significantly(काफी) helped lower contagion(रोग/छूत) risk to the banking system. A contagion analysis that assumes(मान लेना/कल्पना करना) there would be no sovereign(उत्तम) guarantee provided for the 11 PSBs placed under the PCA curbs, in the event of a simultaneous(एक साथ)failure(विफलता,), projects that solvency losses due to such failure have more than halved over the four quarters ended September: to ₹34,200 crore (3.1% of total Tier-1 capital) from ₹73,500 crore (6.8% of total Tier-1 capital). Data on banking frauds are also a cause(वजह/कारण) for concern(चिंता). Close to 95% of the frauds reported in the six months ended September were credit-related, with PSBs again bearing(असर) the brunt(चोट/खामियाजा ) of mala fide intent(प्रयोजन/आशय) on the part of borrowers. The RBI’s report has justifiably(उचित रूप से) spotlighted(चर्चित/शोहरत) the urgent need to tighten the oversight framework for financial conglomerates(कंपनियों के संगठन/एकत्रित होना) in the wake(जागृत होना) of the IL&FS meltdown, which continues to ripple(लहराना) across the financial system, including at mutual funds and non-banking financial companies. As Mr. Das said in his foreword, “…the recent developments in NBFCs have underscored the need for greater prudence (सावधानी/विवेक) in risk-taking.” Regulators and policymakers need to work together to insulate(अलग करना) the economy from the risks of similar fiascos(असफलता).

Important Vocabulary

1. Fog(कोहरा/धूंधलापन)
Synonyms: cloud, gloom, smog, smoke, steam
Antonyms: clearness, cognizance, understanding

Synonyms: belie, blind, block out, blur, camouflage
Antonyms: brighten, clarify, clear, clear up, explain

3. Ratio(अनुपात)
Synonyms: proportion, quota, rate, scale, arrangement
Antonyms: difference, whole

4. Sustained(निरंतर
Synonyms: constant, continued, continuous, uninterrupted, backed
Antonyms: discontinuous, ending, intermittent, interrupted, stopping

5. Assumption(धारणा/कल्पना)
Synonyms: acceptance, belief, expectation, guess, hunch
Antonyms: disbelief, fact, knowledge, measurement, proof

6. Prognosticate(भविष्य बतलाना)
Synonyms: adumbrate, augur, betoken, divine, forebode

7. Peers(साथियों)
Synonyms: associate, rival, companion, compeer, like
Antonyms: inferior, superior

8. Criticism(आलोचना/समीक्षा)
Synonyms: assessment, comment, critique, judgment, opinion
Antonyms: heedlessness, neglect, approval, compliment, estimation

9. Simultaneous(एक साथ)
Synonyms: concurrent, accompanying, agreeing, at the same time, coetaneous
Antonyms: asynchronous, different, divided, following, preceding

10. Conglomerates(कंपनियों के संगठन/एकत्रित होना)
Synonyms: amassed, assorted, blended, clustered, massed
Antonyms: like, same, similar, unvaried, individual

11. Wake(जागृत होना)
Synonyms: deathwatch, rites, vigil, watch, funeral service

12. Ripple(लहराना)
Synonyms: billow, breaker, crest, curl, fold

13.Prudence (सावधानी/विवेक)
Synonyms: austerity, conservatism, diligence, discretion, foresight
Antonyms: carelessness, ignorance, indiscretion, stupidity, thoughtlessness

13. Fiasco(असफलता).
Synonyms: blunder, breakdown, debacle, disaster, embarrassment
Antonyms: accomplishment, achievement, miracle, success, triumph

14. Insulate(अलग करना)
Synonyms: cushion, isolate, seclude, sequester, shield
Antonyms: join, mingle, uncover


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