Bad loans may fall to 4 per cent by March 2016, says RBI

“Gross non-performing assets (GNPAs) of banking system is likely to drop to 4 per cent by March 2016 with expected improvement in macroeconomic indicators going forward”, the Reserve Bank of India (RBI) said on Monday.

The macro stress tests for credit risk suggest that under the baseline scenario, which assumes improvement in the overall macroeconomic scenario during the next financial year, the GNPA ratio of all SCBs may decline to 4 per cent by March 2016 from 4.5 per cent as at end September 2014, the RBI said in its Financial Stability Report (FSR)in Mumbai.

The report, however, warned that if macroeconomic conditions deteriorate, the GNPA ratio of scheduled commercial banks (SCBs) may increase further and under a severe stress scenario it could rise to around 6.3 per cent by March 2016.

Under such a severe stress scenario, the system level CRAR (capital to risk weighted asset ratio) of banks could decline to 9.8 per cent by March 2016 from 12.8 per cent in September 2014.

The net non-performing advances (NNPAs), as a percentage of total net advances, increased to 2.5 per cent in September 2014 from 2.2 per cent in March 2014.