Bad Loans In Banks May Surge To 15%

Non-performing assets (NPAs) in Indian banks could shoot up to around 15 per cent of total loans by March 2021 as the coronavirus crisis leads to rising levels of corporate and household debt, according to the financial stability report (FSR) released by the RBI on Friday.

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As India’s economy feels the impact of the COVID-19 pandemic, macro stress tests indicate that the gross NPA ratio of all banks could increase to 12.5% by next March under a baseline scenario and may escalate to 14.7% under a very severely stressed scenario, the report states.

The baseline scenario is derived from the forecasted values of macroeconomic variables such as GDP growth, gross fiscal deficit-to-GDP ratio and CPI inflation among others.

Indian banks have been grappling rising bad loans for years but managed to bring gross NPAs down to 8.5% in March, from 9.3% in September 2019 with the RBI introducing more stringent rules to check the slide.

“The pandemic has the potential to amplify financial vulnerabilities, including corporate and household debt burdens in the case of severe economic contraction,” the report said.