SUCBs sig­nif­i­cantly im­pacted un­der a stress sce­nario

Banking Frontiers - - Research Notes - Me­hul@bank­ingfron­

At the sys­tem level, the CRAR of sched­uled ur­ban co­op­er­a­tive banks (SUCBs) in­creased from 13% to 13.6% be­tween Septem­ber 2016 and March 2017. How­ever, at a dis­ag­gre­gated level, CRAR of five banks were be­low the min­i­mum re­quired level of 9%. GNPAs of SUCBs as a per­cent­age of gross ad­vances de­clined from 8.6% to 7.2% and their pro­vi­sion cov­er­age ra­tio in­creased from 47.2% to 54.2% dur­ing the same pe­riod. Fur­ther, ROA de­clined from 0.9% to 0.6% while the liq­uid­ity ra­tio rose from 34.7% to 35.9% dur­ing the same pe­riod. Th­ese de­tails form the con­tent in a chap­ter ti­tled ‘Fi­nan­cial In­sti­tu­tions: Sound­ness and re­silience’, in the Fi­nan­cial Sta­bil­ity Re­port (FSR) 2017, re­leased on 30 June 2017 by RBI.

The im­pact of credit risk shocks on the CRAR of SUCBs was ob­served un­der four dif­fer­ent sce­nar­ios. The re­sults show that un­der a se­vere shock (sce­nario IV) of in­crease in GNPAs by 2 Stan­dard De­vi­a­tion, which moves into loss cat­e­gory, the sys­tem level CRAR of SUCBs may come down be­low the min­i­mum reg­u­la­tory re­quire­ment. At in­di­vid­ual level, a sig­nif­i­cant num­ber of banks (35 out of 54) may not be able to main­tain the min­i­mum CRAR.

A stress test on liq­uid­ity risk was car­ried out us­ing 2 dif­fer­ent sce­nar­ios: i) 50% and ii) 100% in­crease in cash out­flows, in the 1 to 28 days’ time bucket. It was fur­ther as­sumed that there was no change in cash in­flows un­der both the sce­nar­ios. The stress test re­sults in­di­cate that SUCBs may be sig­nif­i­cantly im­pacted un­der a stress sce­nario (out of 54 banks, 21 banks un­der Sce­nario i and 35 banks un­der Sce­nario ii).

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