The Reserve Bank’s stress test results for UCBs show that some UCBs failed on four out of five parameters even in the baseline scenario. reserve Bank of Indiaof the latest Financial Stability Report. Furthermore, the results also show that the impact of credit default risk is greater than the credit concentration risk in all three scenarios – baseline, moderate and severe. The results also show that the impact of shocks on the trading book and banking book is minimal but liquidity shocks affect UCBs the most.
Stress tests on 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 position as on March 2022 were organized.
Overall, UCBs recorded improvement in profitability in terms of net interest margin-NIM, return on subsidiary-ROA and return on equity-ROE ratio during 2021-22, RBI said.
It may be noted that the priority sector lending of UCBs has crossed the target of 50 per cent as on March 31, 2022 and is close to the target of 60 per cent as on March 31, 2023. The CRAR of UCBs during April-September 2021-22 reached 15.8 per cent in March 2022. The CRAR of scheduled UCBs improved to 14.4 per cent mainly due to amalgamation of one UCB with one SFB, RBI said.
After a sudden spike due to the second wave of COVID-19 in September 2021, the gross non-performing asset ratios of both scheduled UCBs and non-scheduled UCBs improved significantly to 7.4 per cent and 11.3 per cent respectively as of March 2022.