A financial stability report released by the Reserve Bank of India (RBI) on Wednesday showed that the bad loan ratio for India’s banking sector could improve to 3.6% in March 2024, from a 10-year low of 3.9% in March 2023, provided conditions do not worsen. total economy.
The report includes contributions from all financial sector regulators in the country and is published twice a year by the central bank.
“The overall stress tests of credit risk show that all banks will meet minimum capital requirements even in an extreme stress scenario,” the report said. “The risks of infection and solvency have decreased.
However, if broader economic conditions worsen, the bank’s non-performing asset ratio (NPA) – a measure of a bank’s bad loans – could rise to 4.1% and 5.1% respectively in a moderate or severe stress scenario, the RBI warned. .
Under such a scenario, the total NPA for state-owned banks could reach 6.1% in March 2024 from 5.2% a year earlier, while private sector banks could see that number rise to 3.8% over the same period from 2.2%, the central bank said. the bank.
After a series of bank failures in the US, the RBI has increasingly encouraged banks to strengthen their governance standards, increase capital reserves and tighten underwriting practices to avoid financial instability.
The report said all banks can meet minimum capital requirements even in adverse stress scenarios.
However, in “adverse situations,” the report added, some individual banks may fail to meet minimum capital requirements.
The report said India’s economy is resilient, supported by sustained growth, mild inflation and a low current account deficit, among other factors.
However, the report added that slowing global growth and possible volatility in the global financial system could pose risks to the growth path.
