MUMBAI: RBI semi-annual stress tests indicate that bad loans could get worse in the next 12 months, but would still be in the single digits even in the worst case. The projected results are the most optimistic since the pandemic broke out and were expressed with the assurance that banks are adequately capitalized to absorb credit losses and comply with prudential guidelines.
The Financial Stability Report released by the RBI on Wednesday projects that banks’ gross NPAs will rise to 8.1% of total assets by September 2022 from 6.9% in September 2021 in a baseline scenario and at 9.5% in a 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, somewhat like the RBI crash test where you assess the impact if some hypothetical adverse economic events occur. “However, SCBs would have sufficient capital, both at the aggregate and individual level, even under stressful conditions,” the report said.
In a preview of the report, RBI Governor Shaktikanta Das said: “Bank balance sheets remain strong and capital and liquidity buffers are being strengthened to mitigate future shocks, as reflected in the stress tests presented. in this report. ”
All previous projections after the pandemic showed much worse results than this report. In July 2020 and January 2021, the RBI NPA for the baseline scenario was in double digits. As of July 2021, RBI had forecast a baseline GNPA of 9.8% and worst case of 11.22%.
The last one is the most optimistic projection of the last two years. More so, considering that analysts expect there to be a gradual increase in NPAs, as some of the loan accounts supported by Covid relief measures become delinquent once the special dispensation ends on March 22. The report said that emerging signs of stress in micro, small and medium-sized enterprises (MSMEs), as well as in the microfinance segment, require close monitoring of these portfolios in the future.
Within banking groups, the GNPA index of public sector banks of 8.8% in September 2021 may deteriorate to 10.5% in September 2022 under the baseline scenario; For private banks, the bad loan ratio can rise from 4.6% to 5.2%.

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