Eight banks are at the risk of seeing CRAR fall below the mandatory 9% as their stressed advances are concentrated in a few borrowers
The first biannual Financial Stability Report (FSR) for 2016 released by the Reserve Bank of India (RBI) on Tuesday reveals that macro stress tests done by it indicate gross non-performing assets (GNPAs) in the banking sector rising to 8.5% of advances by the end of March 2017. The report further reveals that under a severe stress scenario – two standard deviations of 10-year data – GNPAs are likely to shoot up to 9.3% of advances – a 170 bps rise since FY16.
When it comes to different bank-groups, the report expects public sector banks’ (PSBs’) books to continue deteriorating even in FY17 leading to higher GNPAs. “Under the baseline scenario, their GNPA ratio may go up to 10.1% by March 2017 from 9.6% as of March 2016. However, under a severe stress scenario, it may increase to 11% by March 2017,” the report mentions. If the severe stress situation plays out, the capital to risk weighted assets ration (CRAR) of PSBs will fall to 10.3% by the end of FY17, the report adds.
The beleaguered iron and steel sector, which had a GNPA ratio of 30.4% by the end of FY16, will see the same rising to 33.6% in the event of a severe stress scenario, the report observes.
The good news, however, is the fact that even under a severe shock scenario – three standard deviations – the system level CRAR will remain well above the minimum requirement of 9%. “Under severe shock of 3 SD, the system level CRAR and Tier-1 CRAR declined to 10.1% and 7.5%, respectively,” the report reads.
At the same time, the report has found eight banks at the risk of seeing their CRAR fall below the mandatory 9% due to the fact that their stressed advances are concentrated in a few borrowers. “Stress tests on banks’ credit concentration risks, considering top individual borrowers according to their stressed advances, showed that the impact was significant for 8 banks, comprising about 12.1% of the assets, which may fail to maintain 9% CRAR in at least one of the scenarios,” the report notes.