A macro stress test carried out by the banking regulator indicates that under the baseline scenario, gross non-performing assets (GNPAs) might rise from 10.2 per cent of gross advances in September 2017 to 10.8 per cent in March 2018 and further to 11.1 per cent by September 2018, the Reserve Bank of India’s (RBI) Financial Stability Report (FSR) said on Thursday.
“The overall risks to the banking sector remained elevated due to asset quality concerns,” said the RBI report.
Credit growth of scheduled commercial banks (SCBs) showed an improvement between March and September 2017, while public sector banks (PSBs) continued to lag behind their private sector peers. According to the report, the gross non-performing advances (GNPA) ratio and the stressed advances ratio of the banking sector increased between March 2017 and September 2017. The overall capital to risk-weighted assets ratio (CRAR) of the banking system improved from 13.6 per cent to 13.9 per cent between March 2017 and September 2017. The share of large borrowers both in total SCBs’ loans and GNPAs declined between March and September 2017. The report said GNPAs of the non-banking financial company sector as a percentage of total advances rose between March and September.
“The network analysis indicates that the degree of interconnectedness in the banking system has decreased gradually since 2012. The joint solvency-liquidity contagion analysis shows that the losses due to default of a bank have declined,” said the report.
The FSR said that SCBs have continued to be the dominant players accounting for nearly 47 per cent of the bilateral exposure followed by asset management companies managing mutual funds, NBFCs, insurance companies, housing finance companies and all-India financial institutions.
The report also said that the overall investment climate “remains challenging” despite registering an improvement from the first quarter of the current fiscal.
“The global economy has picked up steam and the growth momentum appears sustainable,” said the RBI report.