Banks' Gross NPAs may climb to 12.5% by March 2021: RBI

The Reserve Bank of India has released the 21st Issue of the Financial Stability Report (FSR). The FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, and the resilience of the financial system in the context of contemporaneous issues relating to development and regulation of the financial sector.

RBI's financial stability report has said that the capital to risk-weighted assets ratio (CRAR) of Scheduled Commercial Banks (SCBs) edged down to 14.8 per cent in March 2020 from 15.0 per cent in September 2019 while their gross non-performing asset (GNPA) ratio declined to 8.5 per cent from 9.3 per cent and the provision coverage ratio (PCR) improved to 65.4 per cent from 61.6 per cent over this period.

The report also adds that the macro stress tests for credit risk indicate that the GNPA 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 ratio may escalate to 14.7 per cent under a very severely stressed scenario.

Meanwhile, Reserve Bank Governor Shaktikanta Das has asked banks to desist from extreme risk aversion during COVID-19 pandemic. In his foreword to the bi-annual Financial Stability Report, Das said, the top priority right now for banks and financial intermediaries should be for augmenting capital levels and to improve resilience.

Mr Das said, the country's financial system is sound but the need of the hour is to remain extremely watchful and focused. He said governments, central banks and other public agencies across countries have made coordinated efforts to alleviate financial stress and build confidence among businesses, investors and consumers.

While maintaining that outlook for the financial system and markets remains highly uncertain, the Governor, however, added that signs of gradual recovery from the nationwide lockdown are visible.

Making it clear that there is no room for complacency on cybersecurity, Mr Das said, IT platforms that have worked well in times of social distancing need to consolidate the gains in the post-pandemic period.

The report underlines that a combination of fiscal, monetary and regulatory interventions in response to COVID-19, has ensured normal functioning of financial markets. It adds that simmering global geopolitical tensions and economic losses on account of the pandemic are major downside risks to global economic prospects.