SUCBs: CRAR stable, GNPA declines

Reported by: |Updated: October 6, 2020

Senior executives of 2 scheduled UCBs analyze relevant details of banking parameters in RBI’s Financial Stability Report:

The performance of scheduled urban cooperative banks (SUCBs) broadly remained stable between September 2019 and March 2020 and at the CRAR of 54 of these banks remained at 9.8% for both the quarters, according to the latest Financial Stability Report (FSR) of RBI released in July 2020. GNPAs of these banks declined from 10.5% of gross loans and advances to 9.9% and their provision coverage ratios increased from 40.9% to 61.4% over this period. Their RoAs too improved but remained in negative territory in March 2020 at -1.8% as against -3.6% observed in September 2019. Liquidity ratios remained stable at 34%. Narendra M. Patel, Chairman, Ahmedabad Mercantile Cooperative Bank, says SUCBs have remained stable as compared to all other Indian banks. “Our bank’s NPAs have reduced from Rs138.52 million to Rs116.26 million (1.02% of gross NPA) and provision has been increased from Rs772.20 million to Rs819.29 million resulting in zero net NPA. This was the scenario in all the cooperative banks across Gujarat. The trust level of public also has increased, which is indicated by the growth in our deposits from Rs16.68 billion in March 2019 to Rs17.75 billion as of 2019-20, a growth of 6.44%. This is the pattern observed at all cooperative banks across Gujarat. Return on Assets of our bank is at 1.25% as on 31 March 2020 against 1.38% in the previous period.”

Jalgaon People’s Cooperative Bank’s CRAR is at 12.72%, GNPAs 3.93%, ROA 0.68%, and PCR 33.19% as at March 2020. Dilip Deshmukh, MD & CEO, says in order to increase quality advances, the bank has reduced interest rates and process fees for attracting good borrowers. With a strong monitoring team and best recovery process and efforts, he expects to restrict further deterioration of asset quality. This will indeed help the bank to make less provisions.


RBI’s FSR says the impact of credit risk shocks on CRAR of SUCBs was simulated under 4 different scenarios. The results show that (i) under a 1 SD shock to GNPAs classified as loss assets, system-level CRAR would decline to 9.1% and two SUCBs would fail to achieve the minimum CRAR requirement; in addition to 3 which had CRARs below 9% even before the shock; (ii) under a 2 SD shock to GNPAs classified as sub-standard assets, one additional UCB would fail to achieve the 9% CRAR minimum; and (iii) under a 2 SD shock to GNPAs classified as loss advances, system-level CRAR declines to 8.1% and 8 more UCBs would fail to maintain the minimum CRAR requirement. Ahmedabad Mercantile Cooperative Bank’s CRAR has remained stable at 28.51% as on March 2020, which was 28.98% a year ago. Explains Patel: “Our performance with regard to CRAR is quite satisfactory as compared to the banking industry. The total capital fund of our bank as on March 2020 is Rs3.14 billion and the total risk-weighted asset is Rs10.85 billion. Therefore, we have been able to achieve the minimum requirement of CRAR level of 9% with considerable ease. Our CRAR has always remained above 28% since the last 10 years and we, therefore, focus more on raising the tier I capital.”


The FSR says a stress test on liquidity was carried out using 2 different scenarios of increase in cash outflows in the 1-28 days’ time bucket by (i) 50%, and (ii) 100%, with cash inflows remaining unchanged. Under the 2 scenarios, 20 banks, and 34 banks, respectively, would face liquidity stress. As per the RBI’s guidelines, a mismatch (cash inflows less than cash outflows) should not exceed 20% of outflows in the time bucket of 1-28 days. SUCBs, which are above a 20% mismatch after the shock, function under very thin liquidity margins.

The cumulative mismatch to cumulative outflows for Ahmedabad Mercantile Cooperative Bank is in the positive up to the period of 6 months. Patel indicates that the bank has an ongoing focus on liquid funds to fill up the deficits. “We make more emphasis on the use of an unveiled portion of credit which may reduce the burden of risk. Further, the cumulative GAP and net GAP as a percentage of total assets up to 6 months under interest rate sensitivity are also positive,” he says.

The liquidity position of Jalgaon People’s Cooperative Bank’s too is quite comfortable. It has T-Bills and FDOD limits to meet funding demands. Deshmukh elaborates: “Our deposit level is also increasing in spite of covid. Since our CD ratio is only 50%, the liquidity position is comfortable. Moreover, we are trying to increase deposits through telephonic contact with customers. So, we are sure that there will not be a strain on liquidity. There is a positive gap in our ALM bucket for 1-28 days, which shows that there is no liquidity stress.”

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