The gross non-performing assets (GNPA) ratio of banks may decline further to 3.1% by September next year from 3.2% at present under the baseline scenario, according to the Financial Stability Report released by the RBI on Thursday. However, under a severe stress scenario, the ratio of banks may rise to 4.4%, noted the bi-monthly report.
“If the macroeconomic environment worsens to a medium or a severe stress scenario, the ratio may rise to 3.6% and 4.4%, respectively,” said the report. Banks are witnessing improvement in their asset quality with the share of bad loans in total credit falling consistently in the past few quarters. As of March this year, the GNPA ratio had plummeted to a decadal low of 3.9%.
The stress test results showed that banks are well-capitalised and capable of absorbing macroeconomic shocks even in the absence of any further capital infusion by stakeholders. “Macro stress tests for credit risk reveal that SCBs would be able to comply with minimum capital requirements,” said the report.
Under the baseline scenario, the aggregate CRAR (capital to risk-weighted assets ratio) of 46 major banks is projected to slip from 16.6% in September 2023 to 14.8% by September 2024. It may go down to 13.5% in the medium stress scenario and to 12.2 % under the severe stress scenario by September 2024, which would also remain above the minimum capital requirements. “No SCB would breach the minimum capital requirement of 9 % in the next one year,” said the report.
The Common Equity Tier 1 (CET1) ratio of the select 46 SCBs may decline from 13.6 % in September 2023 to 12.2 % by September 2024 under the baseline scenario.
In a severely stressed macroeconomic environment, the aggregate CET1 ratio would deplete by 360 basis points, but still remain above the minimum regulatory norms. All banks would be able to meet the minimum regulatory CET1 ratio of 5.5 %, said the report.