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Post at: Jul 27 2021

Rising GNPA: Concerns for India

Recent Context

  • 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.

Abhay Pandey


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