The gross non-performing asset (GNPA) of commercial banks may increase to 9.5% by September 2022 under a severe stress scenario, the Reserve Bank of India (RBI) said in a report on Wednesday. This compares with 6.9% seen in September this year.
“Macro stress tests for credit risk indicate that the GNPA ratio of scheduled commercial banks (SCBs) may increase from 6.9% in September 2021 to 8.1% by September 2022 under the baseline scenario and to 9.5% under a severe stress scenario,” the RBI said in its Financial Stability Report (FSR) of December 2021.
It said SCBs would, however, have sufficient capital even under stress conditions. Emphasising emerging signs of stress in micro, small and medium enterprises (MSME) as also in the microfinance segment, it has called for close monitoring of these portfolios going forward.
In the foreword to the report, RBI Governor Shaktikanta Das noted that a stronger and sustainable recovery hinged on the revival of private investment and shoring up private consumption, which, unfortunately, still remain below pre-pandemic levels. Admitting that inflation remains a concern with the build-up of cost-push pressures, Mr. Das called for stronger supply-side measures to contain food and energy prices.
He said financial institutions had remained resilient amid the pandemic and stability prevailed in the financial markets cushioned by policy and regulatory support.
In the report, the RBI said global economic recovery had lost momentum in the second half of 2021 with resurfacing COVID-19 infections, the Omicron variant, supply disruptions, elevated inflationary levels and shifts in monetary policy stances and actions across economies. “On the domestic front, progress in vaccination has enabled recovery to regain traction after the debilitating second wave of the pandemic, notwithstanding signs of slowing pace more recently; the corporate sector is gaining strength and bank credit growth is improving,” the RBI added.
It said the capital to risk-weighted assets ratio of SCBs rose to a new peak of 16.6% and their provisioning coverage ratio stood at 68.1% in September 2021.
RBI, however, warned non-banking financial firms and urban co-operative banks to be mindful of frailties on the liquidity front and ensure robust asset-liability management, apart from improving the quality of their credit portfolios. Stress tests showed “a significant number of NBFCs would be adversely impacted in the event of liquidity shocks".
(With PTI and Reuters inputs)