Bank NPAs May Rise To 4.4% Under Severe Stress, Finds RBI Report
Under severe stress, the gross NPA ratio of public sector banks may rise to 5.1% by September 2024, while at private banks it may rise to 3.6%, the report showed.
Under the severe stress scenario, Indian banks' gross non-performing assets ratio may rise to 4.4% by September 2024, according to the Reserve Bank of India's Financial Stability Report released on Thursday.
The RBI conducts stress testing on lenders' health under three scenarios: baseline, medium stress and severe stress.
The gross NPA ratio of banks across the board stood at 3.2% at the end of September.
Under severe stress, the gross NPA ratio of public sector banks may rise to 5.1% by September 2024, while at private banks it may rise to 3.6%, the report showed.
Further, the central bank expects the capital adequacy ratio of 44 major banks under the baseline scenario to decline to 14.8% by September 2024. Under medium stress, the capital adequacy may fall to 13.5% and under a severe stress scenario, it may fall to 12.2%.
"Macro stress tests for credit risk indicate that even under a severe stress scenario, all banks would be able to comply with minimum capital requirements," RBI Governor Shaktikanta Das said in the report.
According to RBI guidelines, banks are required to maintain a minimum capital-to-risk-weighted asset ratio of 9% on an ongoing basis. No bank is expected to breach the minimum capital adequacy norm in the next year.
"Stress in the NBFC sector has been assessed to be higher under a high-risk stress scenario relative to the March 2023 position," the governor added.
Therefore, contagion risks may warrant monitoring on account of increased interbank exposure, he said in the report.
In a severely stressed macroeconomic environment, the aggregate tier-I ratio would deplete by 360 basis points but still remain above the minimum regulatory norms, the report showed.
