Due to the sharp slow down in the economy to the lockdown impose to fight against the COVID – 19 pandemic. The Reserve Bank of India (RBI) stress test on banks indicates that the non-performing asset (GNPA) ratio of all the banks may increase from 8.5% in March 2020 to 12.5% by March 21. As a result of the annual financial stability report released on Friday Reserve Bank of India assumed a contraction of gross fiscal deficit of 10.9% and a contraction of GDP by 4.4% and 4.1% of consumer price inflation. As per the calculations of RBI, in a very stressful scenario, gross NPAs could increase rapidly to 14.7% and it is assumed by the central bank that a GDP contraction of 8.9% and 13.9% of growth fiscal deficit and consumer price inflation.
Among the bank groups, the private sector banks and the foreign banks, the GNPA ratio will increase to 7.3%and 3.9% in March 2021 from 4.2% and 2.3% in March 2020
and on the public sector banks, the GNPA ratio will increase to 15.2% in March 2021 from 11.3% in March 2020, it may increase to 15.2% by March 2021 under the baseline scenario. And by March 2021 the worst-case scenario the NPA will increase to 16.3% as of public sector bank and in the case of foreign bank NPAs could go up to 8.5% and in the case of private sector banks, NPA s will increase to 8.7%.
In March 2021 it is also projected to drop by CRAR
(the system level) to 13.3% from 14.6% in March 2020 under the baseline scenario and to 11.8% under the very stress scenario. It is also noted that the rise in the stress will lead to a drop in banking capital adequacy ratios. Stress test results show that in a very severe stress scenario by March 2021 five banks may fail to meet the minimum capital level. RBI said that this does not take into account the mergers or any further recapitalization which will increase systemic resilience.
In March 2020 the core capital or Common Equity Tier 1 (CET 1) capital ratio of banks may decline from 11.7% to 10.7% under this baseline scenario and in March 2021, under the very severe stress scenario, it may decline to 9.4%. By March 2021 three banks may fail to meet the minimum regulatory CET 1 capital ratio of 5.5% under these conditions.