Banks' gross NPAs may rise to 9.5% in Sept 2022: RBI report

The gross non-performing asset ratio of scheduled commercial banks is likely to increase to 9.5 per cent in September 2022 from 6.9 per cent in September 2021 in a severe stress scenario

The gross non-performing asset (GNPA) ratio of scheduled commercial banks is likely to increase to 9.5 per cent in September 2022 from 6.9 per cent in September 2021 in a severe stress scenario, the Reserve Bank of India (RBI) said on Wednesday.

"Macro stress tests for credit risk indicate that the gross non-performing asset (GNPA) ratio of SCBs may increase from 6.9 per cent in September 2021 to 8.1 per cent by September 2022 under the baseline scenario and to 9.5 per cent under a severe stress scenario," according to the 24th issue of the Financial Stability Report (FSR) released by the RBI.

In the report, the central bank noted that the scheduled commercial banks would, however, have sufficient capital, both at the aggregate and individual levels, even under stress conditions.

Emerging signs of stress in micro, small and medium enterprises (MSME) as also in the microfinance segment call for close monitoring of these portfolios going forward, it said.

The capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks rose to a new peak of 16.6 per cent and their provisioning coverage ratio (PCR) stood at 68.1 per cent in September 2021.

In the Reserve Bank's latest Systemic Risk Survey (SRS), all broad categories of risks to the financial system - global; macroeconomic; financial market; institutional; and general - were perceived as 'medium' in magnitude, but risks arising on account of global and financial markets were rated higher than the rest.

Commodity prices, domestic inflation, equity price volatility, asset quality deterioration, credit growth, and cyber disruptions were rated as the major risks.

In the report the RBI noted that the global recovery has been losing momentum in the second half of 2021, impacted by resurgence of infections in several parts of the world, supply disruptions and bottlenecks, persistent inflationary pressures and shifts in monetary policy stances and actions across systemic advanced economy central banks as also some emerging market economies.

On the domestic front, progress in vaccination has enabled the 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 report said.

During April-October 2021, all the deficit indicators of the central government exhibited improvement from their pre-pandemic levels. The borrowing programme has proceeded smoothly. The Indian corporate sector has gained strength and resilience through the pandemic and key financial parameters of listed non-financial private companies indicate improvement.

"Bank credit growth is showing signs of a gradual recovery, led by the retail segment, although flow of credit to lesser rated corporates remains hesitant. Micro, small and medium enterprises (MSMEs) as also the microfinance segment are reflecting signs of stress," the RBI said.