The Reserve Bank of India (RBI) has warned that gross non-performing assets (GNPAs) of scheduled commercial banks (SCBs) could spike to 12.5 to 14.7 per cent of gross advances by March-end 2021 from 8.5 per cent as of March-end 2020.

This assessment is based on the macro stress tests, which take into account the shocks (including the pandemic’s impact) in terms of adverse macroeconomic conditions, according to the latest Financial Stability Report (FSR) released by the RBI.

As per the macro test, GNPAs could increase 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.

GNPAs of SCBs had declined to 8.5 per cent of gross advances as of March-end 2020 from 9.3 per cent as of September-end 2019.

Financial system

In his foreword to the FSR, Governor Shaktikanta Das emphasised that the financial system in India remains sound.

“Nonetheless, in the current environment, the need for financial intermediaries to proactively augment capital and improve their resilience has acquired top priority.

“In the evolving milieu, while risk management has to be prudent, extreme risk aversion would have adverse outcomes for all,” he said.

Das observed that the signs of a gradual recovery from the nationwide lockdown are becoming visible of late. He said the report coincides with a growing disconnect between the movements in certain segments of financial markets and real sector activity.

Das said going forward, once India enters the post-pandemic phase, the focus would be on calibrated unwinding of regulatory and other dispensations.

“Financial intermediaries will have to undertake reappraisal of their business models. “Asset markets have to adapt to a new normal in a non-disruptive manner. Contagion risks warrant constant vigilance by all stakeholders in the financial system,” said the Governor.