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Cooperative Banking

Liquidity shocks impact the largest number of UCBs


Priority sector lending (PSL) of urban cooperative banks (UCBs) has exceeded the March 31, 2022 target of 50% and is nearing the March 31, 2023 target of 60%. The CRAR of UCBs increased during H2:2021-22 to 15.8% in March 2022. the CRAR of scheduled UCBs (SUCBs) improved to 14.4%, owing primarily to the amalgamation of one UCB with an SFB, according to the RBI’s 25th issue of the Financial Stability Report (FSR), released on Thursday.

Following a sudden spike in September 2021 due to the second wave of Covid-19, GNPA ratios of both SUCBs and NSUCBs improved significantly, reaching 7.4% and 11.3%, respectively, by March 2022. Their NNPA ratios also moderated during the year. Though provisions declined, PCR of SUCBs and NSUCBs improved to 64.9% and 62.2% respectively, due to large fall in their GNPAs. UCBs recorded improvement in profitability in terms of NIM, RoA and RoE ratios during 2021-22.

Stress tests have been conducted on a select set of UCBs to assess credit risk (default risk and concentration risk), market risk (interest rate risk in trading book and banking book) and liquidity risk, based on their reported financial positions as of March 2022. The results show that (a) a few UCBs fail on 4 of the 5 parameters even in the baseline scenario; (b) the impact of credit default risk is higher than credit concentration risk in all 3 scenarios; (c) the impact of shock to the trading book and the banking book is minimal; (d) liquidity shocks impact the largest number of UCBs.

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