The reserve bank of India on Wednesday released the 24th issue of the Financial Stability Report, which showcases the combined estimate of the sub-committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the strength of the financial system.
The street tests revealed that the increase in the gross NPAs (non-performing assets) would put the banks at stake. The gross non-performing assets (NPAs) of banks are likely to increase from 6.9% in September 2021 to 8.1% by September 2022 under the baseline scenario and to 9.5% under a severe stress scenario, the press release dated December 29, 2021, from the Reserve Bank of India (RBI) highlighted.
Global economic recovery has been facing a conundrum due to the resurge of the COVID-19 cases due to the new variant omicron in the second half of 2021. Supply disruptions and bottlenecks, elevated inflationary levels and shifts in monetary policy stances and actions across advanced economies and emerging market economies have been the cause of this loss of momentum of the economic recovery.
However, on the domestic front, the progress in vaccination has led to the recovery to regain grip after the outbreak of the second corona wave after which the corporate sector and the bank credit is improving at a slow pace.
“The capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) rose to a new peak of 16.6 per cent and their provisioning coverage ratio (PCR) stood at 68.1 per cent in September 2021. Emerging signs of stress in micro, small and medium enterprises (MSME) as also in the microfinance segment call for close monitoring of these portfolios going forward”, the press release further added.
A non-performing asset (NPA) refers to a classification for loans or advances that are in default or arrears. A loan is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet his/her obligations.