Macro stress tests conducted by the Reserve Bank of India (RBI) show that Scheduled Commercial Banks’ (SCBs) aggregate capital levels, as measured by capital to risk-weighted assets (CRAR), will continue to remain above the regulatory minimum of 9 per cent even under adverse stress scenarios.

Further, none of these banks will breach the regulatory minimum Common Equity Tier-I (CET-I) requirement of 5.5 per cent under the adverse scenarios – scenario 1 (geopolitical risk) and scenario 2 (global growth slowdown).

RBI Governor Sanjay Malhotra, in his foreword to the Financial Stability Report (FSR), said, “Results of stress tests reaffirm the strength of the banking and non-banking sectors with capital levels projected to remain well above the regulatory minimum even under adverse shock scenarios. The healthy balance sheets of corporates, banks and non-bank financial companies (NBFCs) augur well for the economy.”

Dip in CRAR

RBI conducted macro stress tests on a sample of 46 SCBs, accounting for 98 per cent of the total assets of SCBs (excluding Regional Rural Banks).

These tests aim to assess the resilience of the banking system to macroeconomic shocks. The tests project capital ratios of banks under three scenarios – a baseline and two adverse macro scenarios over a two-year horizon, incorporating credit risk, market risk and interest rate risk in the banking book in the framework.

The results revealed that the aggregate CRAR of 46 major SCBs may marginally dip to 17 per cent by March 2027, from 17.2 per cent in March 2025, under the baseline scenario.

The CRAR may decline to 14.2 per cent under adverse scenario 1, and to 14.6 per cent under adverse scenario 2. However, none of the banks would fall short of the regulatory minimum requirement of 9 per cent even under the adverse scenarios.

GNPA to rise

The report stated the CET-I capital ratio of the select 46 banks may rise from 14.6 per cent in March 2025 to 15.2 per cent by March 2027 under the baseline scenario. However, it may fall to 12.5 per cent under adverse scenario 1, and to 12.9 per cent under adverse scenario 2. None of the banks would breach the regulatory minimum requirement of 5.5 per cent under any of these scenarios

The aggregate GNPA (gross non-performing assets) ratio of the 46 banks may marginally rise from 2.3 per cent in March 2025 to 2.5 per cent in March 2027 under the baseline scenario, and to 5.6 per cent and 5.3 per cent, under adverse scenario 1 and adverse scenario 2, respectively.

The report emphasised that SCBs’ soundness and resilience are bolstered by robust capital buffers, multi-decadal low non-performing loans and strong earnings.

SCBs continued to record improvement in their asset quality, with the GNPA ratio and net NPA ratio declining to multi-decadal lows of 2.3 per cent and 0.5 per cent, respectively. Further, the half-yearly slippage ratio, measuring new accretions to NPAs as a share of standard advances at the beginning of the half-year, remained stable at 0.7 per cent

The report noted that the write-offs to GNPA ratio for SCBs moved up marginally to 31.8 per cent in 2024-25 from 29.5 per cent in the previous year, led by PVBs (private sector banks) and FBs (foreign banks), while write-offs by PSBs (public sector banks) exhibited a marginal decline.

Disaggregation of NPA movements revealed that write-offs were a major component of NPA reduction over the last 5 years.

Published on June 30, 2025