NPA estimates: Street's optimism at odds with the RBI's pessimism

Regulator's projections higher by 250-350 bps, analysts may have jumped gun on faster recovery

Projections regarding asset quality in the banking sector have left the Street and Reserve Bank of India (RBI) divided. 

The RBI’s Report on Trend and Progress of Banking in India, 2020, published in December, reiterated the RBI governor’s opinion that asset quality woes may not be behind for banks, yet. The report captures the annual performance of the sector. 

However, the Street differs in its view, believing that the sector has performed better than expected, because of which the rerating in banking stocks (seen since October) does not defy logic.

To put things into context, the sustained rally in the