Gross NPA ratio of all SCBs may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario.
The woes of India’s commercial banks don’t seem to fade away anytime soon as the Reserve Bank of India today projected that NPAs may shoot up in the coming months. In July’s Finacial Stability Report, the RBI showed that the gross NPA ratio of all SCBs may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario. It added if the macroeconomic environment worsens, the ratio may further escalate to 14.7 per cent under the very severely stressed scenario.
The PSU banks are expected to take the strongest blow from rising NPAs as the central bank projected that their GNPA ratio of 11.3 per cent in March 2020 may increase to 15.2 per cent by March 2021 under the baseline scenario. On the other hand, GNPA ratio of private banks and foreign banks are expected to rise from 4.2 per cent to 7.3 per cent and 2.3 per cent to 3.9 per cent, respectively, over the same period.
The effect of the coronavirus pandemic hit India’s banking sector at a time when it gradually started to improve. The gross NPA of all SCBs fell to 8.5 per cent, after climbing to 9.3 per cent in September 2019. The borrower-wise NPA distribution chart also showed that the top 100 borrowers accounted for 17.5 per cent of gross advances, but only 12.6 per cent of GNPAs of SCBs in March 2020.
On the latest projections regarding the high NPAs, RBI Governor Shaktikanta Das said that the country’s financial system is sound but lenders should desist from extreme risk aversion during Covid-19 pandemic and beyond. Shaktikanta Das added that the top priority right now for banks and financial intermediaries should be for augmenting capital levels and improve resilience. He further said that financial sector stability is a prerequisite for giving confidence to businesses, investors, and consumers, thus, banks have to remain extremely watchful and focused.