NEW DELHI: Gross bad loans of banks could swell to 13.5% of total assets under the baseline stress scenario by the end of September 2021, according to an RBI report. Gross NPA of banks was 7.5% in September 2019. However, if the macroeconomic environment worsens, bad loans could rise to a two-decade high of 14.8%, warned Reserve Bank of India’s Financial Stability Report (FSR), released on Monday.The last time banks piled up NPAs was in 1996-97 at 15.7%.
The stress test projections are close to what RBI had estimated in the last FSR in July. It had then said bad loan ratios might rise to 12.5% of total advances by March 2021 under the baseline stress scenario and to 14.7% under the very severely stressed scenario. Notably, the RBI report also cautioned the stress in the banking system is hidden for now, due to the regulatory forbearances such as loan moratorium, the standstill on asset classification and Covid-led restructuring allowed, and may surface eventually.
“The data on fresh loan impairments reported by banks may not be reflective of the true underlying state of banks’ portfolios. This can underestimate the impact of stress tests,” the report said, urging banks to assess their respective stress situations and follow it up with measures to raise capital proactively.
RBI’s stress test projections have come with several caveats. “...Considering the uncertainty regarding the unfolding economic outlook, and the extent to which regulatory dispensation under restructuring is utilised, the projected ratios are susceptible to change in a nonlinear fashion,” it said.