Higher cap needs, fin inclusion challenge for banks: RBI

The Reserve Bank Of India has released a report assessing the performance of banks in FY12 and also on the road ahead for banks in the coming days, reports CNBC-TV18's Gopika Gopakumar.

Firstly the report says that the domestic financial system remains robust, however there are risks to financial stability because of domestic and macro economic factors. It also states that challenges going forward will be higher capital requirement and financial inclusion for banks.

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The report says that International Financial Reporting Standards (IFRS) is unlikely to be implemented or unlikely to be ready in its entirety before mid-2013. That is a cause of concern for the regulator.

The report also talks about cross border supervision of banks which have global presence.

The Reserve Bank committee headed by Deputy Governor KC Chakrabarty recommends setting up of supervisory colleges for banks especially like SBI and ICICI who have large foreign assets. That is currently under consideration with the Reserve Bank of India.

The Reserve Bank says that asset quality of banks actually deteriorated because of the poor credit appraisal done by the banks during the 2003-2007 period and also because of the domestic economic factors.

Reserve Bank says that slippages, therefore, needs to be contained and asset quality should be monitored carefully. For that Reserve Bank, says, there is a need for granular data from the banking industry.

It also assesses the performance of the banks in the year gone by. Reserve Bank says, the profitability of most banks have dipped in FY12 and balance sheet expansion of many banks have actually slowed down, which is worrisome.

Non-performing assets (NPA) accretion or addition of new loans has also seen an increase for both public sector banks and foreign banks. Private sector banks have seen a lower addition of NPAs, but they have written off most of the loans.