‘NPAS could hit 9.5% in case of severe stress’
MUMBAI: Banks’ gross non-performing assets (NPAS) may climb to 9.5% by March 2023 from 5.9% in March 2022 in case of severe stress, the Reserve Bank of India (RBI) said in a bi-annual report on Thursday.
“Macro stress tests reveal that all banks would be able to comply with minimum capital adequacy norms even in a severe stress scenario, although some segments, as well as non-banking financial companies, may be vulnerable to liquidity shocks,” the RBI’S Financial Stability Report (FSR) said.
Under the RBI’S estimate of baseline stress, gross NPAS may improve to 5.3% by March 2023, taking into account the proposed sale of bad loans to National Asset Reconstruction Co. Ltd (NARCL).
GNPAS may rise to 10.5% from 7.6% for public sector banks and to 5.7% from 3.7% for private banks.
In his foreword to the report, governor Shaktikanta Das noted that the overall resilience of financial institutions should stand the economy in good stead. Stress test results presented in the FSR demonstrate that banks are well-positioned to withstand even severe stress scenarios without falling below the minimum capital requirement, he wrote.
Credit concentration risk and equity price risk may not be substantial, but banks—especially public sector banks—which have substantial unrealized losses in their books at the beginning of the interest rate tightening cycle portend risks to their financial health, the report said, citing a sensitivity analysis.
The banking system’s asset quality improved this year, with the GNPA ratio declining to a sixyear low of 5.9% in March 2022 from 7.4% in March 2021.