The Gross Non-Performing Asset ratio (GNPA) of India’s scheduled commercial banks (SCBs) may climb by the end of the current fiscal year to as much as 11.2% under a severe stress scenario from 7.48% in March 2021, the Reserve Bank of India (RBI) said in its 23rd Financial Stability Report (FSR) on July 1, 2021.
What is NPA/GNPA/GNPA ratio?
According to RBI, NPA or non-performing assets are any advance or loan that is overdue for more than 90 days and it ceases to generate income for the bank.
GNPA is the total amount of principal and interest that is defaulted on by an individual or organization who have received loans from the bank.
GNPA Ratio is the ratio of total GNPA to total advances (loans) of the bank.
FSR Report Findings
India’s Scheduled Commercial Banks (SCBs) GNPA may increase from 7.48 per cent in March 2021 to 9.80 per cent by March 2022 under the baseline scenario.
Under the medium stress scenario, where GDP growth is at 6.5%, the GNPA ratio could rise to 10.36%.
Under severe stress scenario, where GDP growth is at 0.9%, the GNPA ratio may rise to 11.22%
Policy support has helped to contain non-performing loans and maintain solvency and liquidity globally by shoring up financial positions of banks.
The stress in the Micro, Small and Medium Enterprises (MSMEs) and retail segments can be inferred from the transition of the NPA ratio from baseline to severe stress – from 5.82 per cent to 6.04% per cent to 6.46 per cent, and from 4.90 per cent to 5.35 per cent to 5.97 per cent.
0.7% of total retail advances were restructured. The MSME had the highest restructure ratio of 1.7%.
Capital to risk weighted assets ratio (CRAR) increased to 16.03% and the provisioning coverage ratio (PCR) stood at 68.86% in March 2021.
The COVID-19 pandemic has dented the economic activity but monetary, regulatory and fiscal policy measures have helped curtail the solvency risk of financial entities. Stabilize markets and maintain financial stability.
Except for private banks, the write offs as a percentage of GNPA at the beginning of the year, fell sharply as compared to 2019-20.
Suggestions of the Report
SCBs will need to reinforce their capital and liquidity positions to fortify themselves against potential balance sheet stress.
Sustained policy support, benign financial conditions and the gathering momentum of vaccinations were nurturing an uneven global recovery.