GNPA ratio falls to seven-year low of 5% in Sept 2022: RBI

“Under the assumption of no further regulatory reliefs as well as without taking the potential impact of stressed asset purchases by National Asset Reconstruction Company (NARCL) into account, stress tests indicate that the GNPA ratio of all banks may improve from 5 per cent in September 2022 to 4.9 per cent by September 2023, under the baseline scenario,” RBI said in the Financial Stability Report (FSR) released on Thursday.

However, if the macroeconomic environment worsens to a medium or severe stress scenario, the GNPA ratio may rise to 5.8 per cent and 7.8 per cent, respectively, the report said.

The ratio of GNPA to gross advances stood at 5.9 per cent in March 2022. As of September 2022, the net non-performing assets (NNPA) ratio stood at a ten-year low of 1.3 per cent, wherein private sector banks (PVBs’) NNPA ratio was below 1 per cent.

At the bank group level, the report said GNPA ratios of public sector banks (PSBs) may swell from 6.5 per cent in September 2022 to 9.4 per cent in September 2023, whereas it would go up from 3.3 per cent to 5.8 per cent for private sector banks (PVBs) and from 2.5 per cent to 4.1 per cent for foreign banks (FBs), under the severe stress scenario.

“Stress test results presented in this issue of the FSR indicate that banks would be able to withstand even severe stress conditions, should they materialise,” RBI Governor Shaktikanta Das wrote in the foreword of the FSR report.

The stress test results further showed that the banks are well capitalised and capable of absorbing macroeconomic shocks even in the absence of any further capital infusion by stakeholders.

Under the baseline scenario, the aggregate Capital to Risk Weighted Assets Ratio (CRAR) of 46 major banks is projected to slip from 15.8 per cent in September 2022 to 14.9 per cent by September 2023.

It may go down to 14 per cent in the medium stress scenario and to 13.1 per cent under the severe stress scenario by September 2023, but it stays well above the minimum capital requirement, including capital conservation buffer (CCB) requirements, which is 11.5 per cent.

The report said that none of the 46 banks would breach the regulatory minimum capital requirement of 9 per cent in the next one year, even in a severely stressed situation. However, nine banks may fall short of the minimum capital inclusive of CCB.

The common equity tier-1 (CET1) capital ratio of the select 46 banks may decline from 12.8 per cent in September 2022 to 12.1 per cent by September 2023 under the baseline scenario, it said.

The report said the stress tests on banks’ credit concentration – considering top individual borrowers according to their standard exposures – showed that in the extreme scenario of the top three individual borrowers of respective banks failing to repay, no bank will face a drop in CRAR below the regulatory requirement of 9 per cent. However, three banks would see a decline in CRAR below 11.5 per cent – the regulatory minimum inclusive of CCB.

“In this case, twelve banks would experience a fall of more than two percentage points in their CRARs,” it said.

In his foreword, Das wrote that amidst global shocks and challenges, the Indian economy presents a picture of resilience.

On the domestic front, the RBI recognises the destabilising potential of global risks, even as it draws strength from the robust macroeconomic fundamentals of the Indian economy.

He said the RBI and the other financial regulators remain vigilant and are in readiness to ensure the stability and soundness of the country’s financial system through appropriate interventions, whenever necessary.