Gross non performing assets (GNPAs) of scheduled commercial banks (SCBs) fell to a six-year low of 5.9 per cent in March 2022 and could fall further to 5.3 per cent by March 2023, according to the Financial Stability Report of the Reserve Bank of India (RBI).

“Under the assumption of no further regulatory reliefs as well as without taking the potential impact of stressed asset purchases by National Assets Reconstruction Company Limited into account, stress tests indicate that GNPA ratio of all SCBs may improve from 5.9 per cent in March 2022 to 5.3 per cent by March 2023 under the baseline scenario driven by higher expected bank credit growth and declining trend in the stock of GNPAs, among other factors,” the report for June 2022 said.

‘Banks well positioned’

If the macroeconomic environment worsens to a medium or severe stress scenario, the GNPA ratio may rise to 6.2 per cent and 8.3 per cent, respectively, it further said. “Stress test results presented in this FSR demonstrate that banks are well positioned to withstand even severe stress scenarios without falling below the minimum capital requirement,” RBI Governor Shaktikanta Das said in the foreword.

It may be noted that GNPAs of scheduled commercial banks were at 7.4 per cent in March 2021. “Support measures provided by the regulator during the Covid-19 pandemic aided in arresting GNPA ratios of SCBs even with the winding down of regulatory reliefs,” the report, which was released on Thursday, said.

Capital infusion

SCBs asset quality has improved across all major sectors, it said. Net NPA ratio also fell by 70 basis points (bps) during 2021-22 and stood at 1.7 per cent at the year-end while the provisioning coverage ratio (PCR) improved to 70.9 per cent in March 2022 from 67.6 per cent a year ago. The capital-to-risk weighted assets ratio (CRAR) of SCBs rose to a new high of 16.7 per cent.

“Stress test results reveal that SCBs are well capitalised and capable of absorbing macroeconomic shocks even in the absence of any further capital infusion by stakeholders,” the report said.

Under the baseline scenario, the aggregate CRAR of 46 major banks is projected to slip from 16.5 per cent in March 2022 to 15 per cent by March 2023. It may go down to 14.2 per cent in the medium stress scenario and to 13.3 per cent under the severe stress scenario by March 2023. None of the 46 SCBs would breach the minimum capital requirement of 9 per cent in the next one year, even in a severely stressed situation, it further said.

Early signs of stress

The report, however, noted that there are early signs of stress in certain sectors, calling for caution and monitoring on an ongoing basis. It also noted that the annual growth in bank credit by SCBs reached 13.1 per cent in early June 2022, a rate last recorded in March 2019.

“On the back of adequate capital buffers and improving asset quality levels, the Indian banking system is well positioned to support economic growth, with bank credit growing in double digits after a long hiatus,” it said.

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