Bad loans of Indian banking system could jump sharply by September, according to Reserve Bank of India’s estimates, considering the current macroeconomic climate.
Gross bad loans on bank balance sheets could rise to 13.5% by Sept. 30, the regulator said in its latest edition of the Financial Stability Report. That compares with 7.5% in September 2019.
In the worst case scenario, the gross bad loans could rise to 14.8%—the highest in two decades—by the end of the second quarter of financial year 2021-2022.
According to the RBI’s assessment, gross NPAs have been consistently falling over the last two years, with the number at 7.5% in July-September 2020. Even the slippage ratio, the rate of accretion of fresh bad loans, has come down to 0.15% as of September.
“The improvement was aided significantly by the regulatory dispensations extended in response to the Covid-19 pandemic,” the RBI said in the report.
Public sector banks could see the highest 650-basis-point increase in their gross NPAs even under the baseline scenario. Gross NPAs for government-owned banks are estimated to rise from 9.7% in July-September 2020 to 16.2% in July-September 2021, under the baseline scenario, the RBI said. Private banks will likely see their gross bad loans rise from 4.6% to 7.9%.