The economic shock of the pandemic has been weathered well by the commercial banking system so far, even if some lagged impact is still in pipeline, said the Economic Survey 2021-22.

Total net profit of public sector banks (PSBs) increased from Rs 14,688 crore during the first half of 2020-21 to Rs 31,144 crore during the first half of 2021-22, the Survey tabled by Finance Minister Nirmala Sitharaman in Parliament on Monday said.

Similarly, the net profit for private sector banks increased from Rs 32,762 crore to Rs 38,234 crore during the same period, it said, adding, overall, for scheduled commercial banks (SCBs), the net profit increased from Rs 59,426 crore at end-September 2020 to Rs 78,729 crore at end-September 2021.

The Survey also stated that the bank credit growth stands at 9.2 per cent as of 31st December 2021.

According to the Survey, large surplus systemic liquidity, forward guidance of continuing with the accommodative stance and the external benchmark system for pricing of loans in select sectors aided monetary transmission.

Gross non-performing assets (NPAs) ratio of SCBs decreased from 7.5 per cent in the first half of previous fiscal to 6.9 per cent at end-September 2021, it said, net NPA ratio of SCBs was 2.2 per cent at end-September 2021.

With regard to National Asset Reconstruction Company Limited (NARCL), the Survey said that resolution mechanisms of this nature typically require a backstop from government as it imparts credibility and provides for contingency buffers.

Globally, it said, bad banks have been set up with government participation in the form of equity along with other regulatory dispensations, for instance, Danaharta Nasional Berhad (Danaharta) in Malaysia or Asset Resolution Ltd (UKAR) in the UK.

Therefore, taking the precedence from international practices, in India, the government has provided a guarantee of up to Rs 30,600 crore, which will back Security Receipts (SRs) issued by NARCL, it said.

The government guarantee will be valid for five years. Guarantee available for these SRs may be invoked on completion of resolution or liquidation as the case may be to cover the shortfall between actual realization and face value of the asset. The guarantee amount will be issued based on actual assets acquired by NARCL.

“This arrangement will not only safeguard the face value of Security Receipts but it will also take away the need for 100 per cent upfront capitalization of NARCL. The government will charge a guarantee fee on the amount which it guarantees, which will increase annually to incentivize the early and timely resolution,” it said.

Noting that factoring is an important source of liquidity worldwide, especially for MSMEs, it said, the Factoring Regulation (Amendment) Act, 2021 was enacted with the amendments in line with the recommendations of UK Sinha Committee.

“The significant regulations pertaining to the amendment act has been notified by the RBI in January 2022. The amendments have liberalized the restrictive provisions in the Act and at the same time ensure that a strong regulatory/oversight mechanism is in place under RBI,” it said.

Overall, this change would lead to widening of factoring ecosystem in the country and help MSMEs significantly, by providing added avenues for availing credit facility, it said.

The Survey said that the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, passed by Parliament in 2021, made significant changes in the landscape of deposit insurance in India.

Bank-group wise, the percentage of insured deposits vis-à-vis total deposits is 84 per cent for RRBs, 70 per cent for cooperative banks, 59 per cent for SBI, 55 per cent for PSBs, 40 per cent for private sector banks and 9 per cent for foreign banks, it said.

Up to March 31, 2021, a cumulative amount of Rs 5,763 crores has been paid towards claims since the inception of deposit insurance (Rs 296 crore in respect of 27 commercial banks and Rs 5,467 crores in respect of 365 co-operative banks), it said.