minimum regulatory requirement. It said
at the individual level, several SUCBs (26
out of 54) may not be able to maintain
the minimum CRAR. Given that these
findings are based on Basel I computation,
the outcome of stress tests would have
been more severe under Basel II and III
norms. There is thus a need for the UCBs
to strengthen their capital base further. The
sector has to identify sources of high quality
capital, not just tier 2 capital.
GNPAS DOWN, PCR UP
The FSR states that GNPAs of SUCBs as a
percentage of gross advances declined from
8.2% to 6.4% and their provision coverage
ratio (PCR) increased from 48.5% to 60.3%
during the same period. The RoAs of these
banks remained unchanged at 0.7% and
their liquidity ratio declined from 34.1% to
33.5% during the same period. The impact
of credit risk shocks on the SUCBs’ CRAR
was observed under 4 different scenarios.
The results show that even under a severe
shock of an increase in GNPAs by 2 SDs,
the system-level CRARs of SUCBs remained
above the minimum regulatory requirement.
At the individual level, however, a number
of SUCBs (21 out of 54) may not be able to
maintain the minimum CRAR.
The net profits of UCBs moderated in
2017-18 on account of slowdown in interest
income and decline in non-interest income
from a high base, states another RBI report
titled ‘Operations and Performance of
Commercial Banks’ released in December- Although loans and advances
expanded during 2017-18, subdued growth
in interest income may be reflective of the
easing of interest rates during the period.
Total expenditure remained muted due to
reduction in interest expenditure, which
was pronounced for SUCBs and resulted in
an increase in net interest income for both
SUCBs and non-SUCBs. RoA of SUCBs,
which had moderated in 2017-18, has
revived in the first half of 2018-19 to 0.72%.
LIQUIDITY RISKS
RBI had carried out a stress test on liquidity
risks using 2 different scenarios - 50% and100% increase in cash outflows in the 1 to
28 days’ time bucket. It was assumed that
there was no change in cash inflows under
both the scenarios. The results of the stress
tests indicate that 25 banks under the first
scenario and 36 banks under the second
scenario may face liquidity stress, according
to the latest FSR.
The repo rate was 6.25% a year ago and
now it is 5.7% to 5.75% after reduction.
Gajjar of Surat People’s Cooperative Bank
explains: “It is to be noted that ample
liquidity in the system has resulted in lower
daily overnight variable repo rate in auction
by RBI. Even banks are willing to lend at
lower rate but the borrowers are not coming
forward. The reduction in repo rate by the
RBI and downward revision of all overnight
interest rate offer opportunity for industry
and trade.”SPECIAL POLICIES
Gajjar also suggests that RBI should
formulate special policies for all categories
of UCBs and give interest on CRR, or Cash
Reserve Ratio, to reduce percentage of CRR
for UCBs. This will enable the cooperative
banking sector to earn respectable income
for improving their financial health.
“The stance of the government for the
MSME sector will affect UCBs adversely
or positively across the board. It will be
immature to project future trend of growth
if industrial expansion is restricted due to
GST, market demand and risk appetite of
business. Growth perception for coming
months will depend largely on provisions
of 2019 union budget,” says Gajjar.
[email protected]Profitability Indicators - SUCBs versus NSUCBs
- 00
10.0 0
8.00
6.00
4.00
2.000.0 01.20
1.00
0.80
0.6 0
0.400.20
0.0 0Per cent Per cent2012-132013-142014-152015-162016-172017-18 2012-132013-142014-152015-162016-172017-18
SUCB
NIM RoE (RHS) RoA (RHS)NSUCBsRajaram Jhakale Mukeshchandra Gajjar