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NEW DELHI: The financial stress induced by Covid-19 may push gross unhealthy loans to their highest in almost twenty years, the Monetary Stability Report (FSR) for July by the Reserve Bank of India revealed on Friday.
Admitting that the loan moratorium scheme has suppressed the actual stress on Indian banks, RBI governor Shaktikanta Das, warned banks to stay extraordinarily watchful and focussed, in his foreword of the FSR report, which paints a really gloomy image for the Indian banking sector, at the least within the quick future.
In a “very severe stressed scenario”, the gross non-performing belongings of the banking sector may rise to as excessive as 14.7% of complete loans by March 2021, the report mentioned after stress-testing of 53 scheduled industrial banks. It added that even below the baseline situation, the gross NPA ratio may rise to 12.5%. The gross NPA ratio stood at 8.5% as of March 2020.
The final time it was as excessive was in March 2000, when the gross NPA ratio was reported at a whopping 12.7%. As anticipated, the report mentioned public sector banks are more likely to be the worst hit, which may see their gross NPAs rise to 15.2% by March 2021 from 11.3% a 12 months earlier within the baseline situation. The report warned that on account of the worsening macroeconomic components, even personal banks and overseas banks would see a spike in unhealthy loans.
Sectors with the best share of “good quality loans” that may get affected, embrace basic goal loans by non-banking finance corporations, technology of electrical energy, NBFCs within the housing sector and growth monetary establishments. And with banks required to offer extra in opposition to defaulters, the report warned of abrasion of capital, saying systemlevel capital adequacy ratio may drop to 13.3% below the baseline situation, and to 11.8% in very extreme stress, by March 2021.
“Stress test results indicate that five banks may fail to meet the minimum capital level by March 2021 in a very severe stress scenario. This, however, does not take into account the mergers or any further recapitalisation, which will further increase systemic resilience,” the RBI mentioned, with out naming the 5 banks.