MUMBAI: The RBI’s half-yearly stress tests indicate that bad loans could worsen over the next 12 months but would still be in single digits even in a worst-case scenario. The projected outcomes are the most optimistic since the pandemic broke out and couched with the assurance that banks are adequately capitalised to absorb the credit losses and meet prudential guidelines.
The Financial Stability Report released by RBI on Wednesday projects banks’ gross NPAs rising to 8.1% of total assets by September 2022 from 6.9% in Sept 2021 under a baseline scenario and to 9.5% under severe stress scenario.
The rise in bad loans by 1.2-2.6 percentage points from current levels is not a forecast. It is a conservative estimate, something like RBI’s crash test where it assesses the impact if some hypothetical adverse economic situations occur. “SCBs would, however, have sufficient capital, both at the aggregate and individual levels, even under stress conditions,” the report said.
In a foreward of the report, RBI governor Shaktikanta Das said, “Balance sheets of banks remain strong and capital and liquidity buffers are being bolstered to mitigate future shocks, as reflected in the stress tests presented in this report.”
All earlier projections after the pandemic reflected far worse outcomes than the present report. In July 2020 and January 2021, RBI’s NPA for the baseline scenario was in double digits. In July 2021, RBI had forecast a baseline GNPA of 9.8% and the worst case of 11.22%.
The latest is the most optimistic projection in the last two years. More so, considering that analysts expect there will be an inching up of NPAs as some of the loan accounts that are propped up by Covid relief measures turn delinquent once the special dispensation ends on March 22 . The report said that emerging signs of stress in micro, small and medium enterprises (MSME) as also in the micro finance segment call for close monitoring of these portfolios going forward.
Within the bank groups, public sector banks’ GNPA ratio of 8.8% in September 2021 may deteriorate to 10.5% by September 2022 under the baseline scenario; for private banks, the share of bad loans may rise from 4.6% to 5.2%.