Under a severe stress scenario, commercial banks' gross nonperforming assets (GNPA) could rise to 9.5 percent by September 2022, according to a report released by the Reserve Bank of India on Wednesday. In September of this year, the unemployment rate was 6.9%.
According to the RBI's Financial Stability Report (FSR) for December 2021, "Macro stress tests for credit risk indicate that the GNPA ratio of scheduled commercial banks (SCBs) may increase from 6.9% in S eptember 2021 to 8.1 percent by September 2022 under the baseline scenario and to 9.5 percent under a severe stress scenario."
SCBs, on the other hand, would have sufficient capital even under stress, according to the report. It has called for close monitoring of these portfolios in the future, citing emerging signs of stress in micro, small and medium enterprises (MSME) as well as the microfinance segment.
RBI Governor Shaktikanta Das SAYS that a stronger and longer-term recovery hinged on reviving private investment and bolstering private consumption, both of which, unfortunately, remain below pre-pandemic levels. Mr. Das acknowledged that rising cost-push pressures continue to be a concern, and he called for stronger supply-side measures to keep food and energy prices in check.
Financial institutions had remained resilient in the face of the pandemic, he said, and financial markets had remained stable thanks to policy and regulatory support.
The RBI stated in the report that "resurfacing COVIDĀ19 infections, the Omicron variant, supply disruptions, elevated inflationary levels, and shifts in monetary policy stances and actions across economies" slowed global economic recovery in the second half of 2021.
"On the domestic front, progress in vaccination has allowed recovery to regain traction after the debilitating second wave of the pandemic, despite recent signs of slowing; the corporate sector is gaining strength, and bank credit growth is improving," the RBI added. In September 2021, the capital to risk weighted assets ratio of SCBs reached a new high of 16.6%, and the provisioning coverage ratio was 68.1 percent, according to the report.
Nonbanking financial firms and urban cooperative banks, on the other hand, have been warned by the RBI to be wary of liquidity risks and to ensure sound asset-liability management, in addition to improving the quality of their credit portfolios.