RBI Financial Stability Report: Banks' gross NPAs may jump to 9.5% by September 2022 in worst-case scenario

Stress tests have revealed that banks' gross non-performing assets (GNPAs) may jump from 6.9 percent in September 2021 to 8.1 percent by September 2022 under the baseline scenario and to 9.5 percent under a severe stress scenario, the Reserve Bank of India (RBI) said in its Financial Stability Report on December 29.

Scheduled Commercial Banks would, however, have sufficient capital, both at the aggregate and individual levels, even under stress conditions, the report said.

The FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the resilience of the financial system.

Going forward, emerging signs of stress in micro, small and medium enterprises (MSME) as also in the microfinance segment call for close monitoring of these portfolios going forward, said the FSR report.

On the domestic front, progress in vaccination has enabled the recovery to regain traction after the debilitating second wave of the pandemic, the FSR report said.

However, there are signs of slowing pace more recently, the report said. Also, the corporate sector is gaining strength and bank credit growth is improving.

On a positive note, the capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) rose to a new peak of 16.6 percent and their provisioning coverage ratio (PCR) stood at 68.1 percent in September 2021, the report stated.

Further, the global economic recovery has been losing momentum in the second half of 2021 in the face of resurfacing COVID-19 infections, the new variant Omicron, supply disruptions and bottlenecks and elevated inflationary levels, the report noted.

Also, shifts in monetary policy stances and actions across advanced economies and emerging market economies contributed to weakness in the global economy, the FSR report added.