The Reserve Bank of India has flagged fresh concerns over the rise in bad loans of the lenders, saying its stress tests indicate gross non-performing assets of banks could spike close to 10% by September 2020.
"The stress tests indicate that under the baseline scenario, the gross NPA ratios of banks may increase to 9.9% by September 2020, due to change in macroeconomic scenario, a marginal increase in slippages and the denominator effect of declining credit growth," RBI said in its Financial Stability Report.
The gross NPA ratio of banks stood at 9.3% in March 2019.
“Bank-wise distribution of asset quality showed that while 24 banks had GNPA ratios under 5%, four banks had GNPA ratios higher than 20% in September 2019. For banks with high GNPA ratios, availability of growth capital appears to be limited,” it said.
The resilience of the Indian banking system against macroeconomic shocks was tested through macro-stress tests for credit risks. These tests included a baseline and two adverse (medium and severe) macroeconomic risk scenarios.
The stress tests indicated that under the baseline scenario, the GNPA ratios of all SCBs may increase to 9.9% by September 2020 due to change in macroeconomic scenario, a marginal increase in slippages and the denominator effect of declining credit growth.
Among the bank groups, under the baseline scenario, public sector banks' GNPA ratios may increase to 13.2% by September 2020 from 12.7% in September 2019 whereas for private sector banks it may increase to 4.2% from 3.9%, and, for foreign banks, it may go up to 3.1% from 2.9% in September 2019.
For India's economy, it said reviving the twin engines of consumption and investment while being vigilant about spillovers from global financial markets remains a critical challenge going forward.
“While the outlook for capital inflows remains positive, India’s exports could face headwinds in the event of sustained global slowdown but current account deficit is likely to be under control reflecting muted energy price outlook," the RBI said. "India's financial system remains stable notwithstanding domestic growth," the report said.
It, however, added that India’s financial system remained stable notwithstanding weakening domestic growth.