In a surprising change of events, the financial performance of Indian banks in 2020-21 was the greatest in recent years, proving skeptics incorrect. The Reserve Bank of India (RBI) said in its annual Trends & Progress Report that the pandemic-hit financial year was marked by a “discernible increase” in profitability, as banks’ income remained consistent while expenditure decreased.
Despite the ongoing Covid-19 pandemic, which struck the country in 2021 with its devastating second wave, the central bank highlighted in that report that the banks’ financial performance was the strongest in previous years. The banking sector’s asset quality has improved during the year, according to the RBI, with the gross non-performing asset ratio (GNPA) for scheduled commercial banks (SCBs) falling to 6.9% at the end of September, down from 7.3 percent in March and 8.2 percent in FY20.
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The performance of the banking industry, including co-operative banks, and non-banking financial institutions, has been given in the report so far for the years 2020-21 and 2021-22. According to the paper, some of the RBI’s policy responses to the COVID-19 epidemic have reached their pre-announced sunset dates in 2021-22. As a result, certain liquidity measures have been phased out, while other regulatory measures, such as deferring the implementation of the net stable funding ratio (NSFR), imposing restrictions on bank dividend payouts, and deferring the implementation of the final tranche of the capital conservation buffer, have been realigned to avoid extended forbearance and financial stability risks while providing targeted support to needy sectors, according to the RBI. “Even though new bankruptcy procedures under the Insolvency and Bankruptcy Code (IBC) were suspended for a year till March 2021,” the RBI study stated, “it comprised one of the largest modalities of recovery in terms of the amount recovered.”
In a word, the Indian financial sector is at a fork in the road: while the immediate impact of COVID-19 will take precedence in the short term, greater concerns such as climate change and technological innovation would necessitate a well-thought-out plan, according to the RBI research.
