Bad loans across banks fell to a six-year low of 6.9% as of September, according to the Reserve Bank of India. But stress tests conducted by the banking regulator suggest that gross non-performing assets may rise again.
The gross NPA ratio of scheduled commercial banks may rise from 6.9% in September 2021 to 8.1% by September 2022 under the baseline scenario, said the regulator's Financial Stability Report. The baseline scenario builds in GDP growth of 6.3% in the second half of FY22 and 12.5% in H1 of FY23. The RBI clarified that these are not forecasts but scenarios.
Under a severe stress scenario, the gross NPA ratio of banks may rise to 9.5%. This scenario builds in a contraction of 2.1% in GDP in the second half of this year and a 1.1% rise in the first half of next year.
Among different categories of banks, government-owned lenders are likely to see a steeper jump.
For public sector banks, the gross NPA ratio may rise from 8.8% currently to 10.5% by September 2022, under the baseline scenario.
For private banks, bad loans may rise from 4.6% to 5.2% over this period.
Banks, however, have sufficient capital, both at the aggregate and individual levels, even under stress conditions, the report said.
The capital adequacy ratio, currently at 16.6%, may drop to 15.4% under the baseline scenario and to 13.8% under the severe stress scenario. All 48 banks part of the study will be able to maintain the minimum regulatory capital even in the worst case scenario.
Consumer Credit Risks
Sectors where the RBI flagged a relatively high risk include consumer lending and microloans.
In the case of consumer loans, the report said bad loans have stabilised after rising in the immediate aftermath of the Covid crisis. However, delinquencies are still at elevated levels.
"Delinquency levels in terms of product types point to a general deterioration across product categories," the report said. The delinquencies are at the highest for public sector banks at over 5%. Private banks have a lower default rate in this category at 2.23%, while for NBFCs and fintech firms this ratio is at 3.77% and 4.56%, respectively.
Across individual consumer loan categories, education loans had the highest delinquency rate at 7.1%, while housing loans had the lowest rate at 1.9%.
Delinquency rates differed across product categories for different sets of banks. For instance, PSU banks saw a near 12% delinquency rate for credit card receivables compared with the industry average of 3.1%.
Microfinance Portfolio
Across the microfinance sector, the RBI said credit growth is showing some signs of stabilisation. However, outstanding credit to the sector in September 2021 fell below March 2020 levels.
"The spurt in lending to existing borrowers seen at the onset of Covid-19 did not sustain and credit growth to this segment has started tracking aggregate portfolio growth," the report said.
Impairments measured in terms of 30 days past due and 90 days past due rose following the first wave of the pandemic and escalated further during the second wave, the RBI data showed.
"While the recent 30+ dpd based impairment of the portfolio appears to have peaked, the 90+ dpd based impairment shows signs of moderation," it said.
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