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HDFC Securities Report
In its latest financial stability report, the Reserve Bank of India has indicated that while the Indian financial system remains stable, the overall economy and economic prospects face significant downside risks.
As a part of its macroeconomic shock testing, the RBI indicated that, under very severe stress, scheduled commercial banks' gross non-performing assets could rise from 8.5% at present to 14.7% in FY21E and systemic capital to risk asset ratio could fall 300 basis points to 11.8%.
The results of the RBI's credit risk analysis are more extreme, wherein, under a 3 standard deviation shock, SCB's GNPAs could rise to 17.8% and systemic CRAR could fall approximately 550 basis points to 9.3%.
The FSR has also hinted at a disconnect between financial market optimism and the weakening of the real economy, with sudden and sporadic risk-on-risk-off shifts in sentiment.
On the moratorium front, the FSR has indicated that as approximately 50% of SCBs' portfolios were under the moratorium as at April 2020, and that the impact is still uncertain.
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