The Indian banking system is safe, but NPAs may shoot up, says RBI

The gross NPA ratio may rise from 8.5 per cent in March to 12.5 per cent by March 2021, but could worsen to 14.7 per cent under a very severely stressed scenario. However, no bank will fail

The banking system is safe and resilient, thanks to higher capitalisation and shrinking inter-bank linkages, but the pandemic could push up non-performing assets (NPAs) significantly, warned the Reserve Bank of India (RBI) in the bi-annual Financial Stability Report (FSR), released on Friday.

While the downside risk to economic recovery is high, there are early signs of recovery, and “we need to remain extremely watchful and focused”, wrote RBI Governor Shaktikanta Das in the foreword to the report.

The gross NPA ratio of banks may increase from 8.5 per cent in March to 12.5 per cent by March next year under