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Indian banks' total gross non-performing assets (GNPAs) may rise to 14.8 percent under a severe stress scenario by September 2021 compared with 7.5 percent in the year-ago period, the Reserve Bank of India (RBI) said in its Financial Stability Report (FSR) released on January 11.
Under a baseline scenario, the GNPAs of banks may rise to 13.5 percent by September, the report said. The RBI said these numbers were arrived at based on the macro stress tests incorporating the first advance estimates of gross domestic product (GDP) for 2020-21 released on January 7, 2021.
“This highlights the need for proactive building up of adequate capital to withstand possible asset quality deterioration,” the RBI said.
According to the report, the capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) improved to 15.8 percent in September 2020 from 14.7 percent in March 2020, while their GNPA ratio declined to 7.5 percent from 8.4 percent.
Similarly, the provision coverage ratio (PCR) improved to 72.4 percent from 66.2 percent over this period, the report said.
Performance parameters of banks had improved significantly, aided by regulatory dispensations extended in response to the COVID-19 pandemic, the report said.
Bank credit growth remained subdued, with the moderation being broad-based across bank groups. Noting that in the initial phase of the coronavirus outbreak, policy actions were geared towards restoring normal functioning and mitigating stress, the report said the focus was now on supporting the recovery and preserving the solvency of businesses and households.
“Policy measures by the regulators and the government have ensured the smooth functioning of domestic markets and financial institutions; managing market volatility amidst rising spillovers has become challenging especially when the movements in certain segments of the financial markets are not in sync with developments in the real sector,” the report said.
Also, positive news on the vaccine development underpinned optimism on the outlook, though it was marred by the second wave of the virus including more virulent strains, the report said.
The RBI released the 22nd issue of the report after rescheduling the release to incorporate the first advance estimates of national income for 2020-21 that were released by the National Statistical Office on January 7, 2021.