SUCBs significantly impacted under a stress scenario
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).