Macro-prudential devpts to dictate banking outlook in FY18

The risk and regulatory outlook for the banking sector in 2017-18 is expected to be dictated by unresolved issues from the previous year coupled with a plethora of macro-prudential developments, said a report.

Unresolved business from the previous year includes addressing cyber risks, recovery of non-performing loans, strengthening credit underwriting and early warning systems and capital optimisation, the CII-Deloitte report on paradigm shift in banking said.

"There is expected to be abundance of macro-prudential regulation mainly in the area of capital adequacy covering revised standardised approaches for credit and operational risk, significant revisions to advanced approaches for market and credit risk, and increased focus on counterparty credit risk and interest rate risk in the banking book," it noted.
 

The Gross NPA (GNPA) ratio of the banking system stood at 9.6 per cent and the stressed advances ratio stood at 12 per cent as of March 2017. "This certainly is a matter of concern for the banking sector as well as the economy," the report stated.

Further, due to potential risks of new entrants into the industry like fintech companies, it is expected that banking regulations will focus on unassessed risks that are a byproduct of these technologies.

Another measure which would impact the business model and performance of banks is the proposed introduction of the Indian Accounting Standards (Ind AS), the report said.

With the industry seeking advocacy and standardisation, ensuring robust implementation of the Ind AS is critical.

The decisions of lenders to restructure or recover NPAs or potential NPAs are reactive and short-term measures.

Simultaneously, lenders need to have more of a proactive approach and a long term solution which will address timely identification of stressed accounts, so that corrective action can be taken, the report advised.

This will help in the overall reduction of NPAs and stressed assets, it added.