Why RBI Expects Banks' GNPA To Rise From 12-Year Low Of 2.6 Per Cent To 3 Per Cent By March 2026—A Peep Into Financial Stability Report

The Reserve Bank of India’s (RBI) December 2024 Financial Stability Report (FSR) has highlighted a notable improvement in the asset quality of scheduled commercial banks (SCBs). The gross non-performing assets (GNPA) ratio of SCBs fell to a 12-year low of 2.6 per cent in September 2024. However, projections indicate a potential rise to 3 per cent by March 2026.

Macro Stress Tests and GNPA Projections

The RBI's macro stress tests, conducted to evaluate the resilience of banks’ balance sheets against unforeseen macroeconomic shocks, underpin these projections. "The aggregate GNPA ratio of the 46 banks may rise from 2.6 per cent in September 2024 to 3 per cent in March 2026 under the baseline scenario," the report stated.

Under more adverse scenarios, the GNPA ratio could climb to 5 per cent (adverse scenario 1) or even 5.3 per cent (adverse scenario 2) by March 2026. These stress scenarios incorporate stringent hypothetical assumptions beyond the forecasted macroeconomic trends.

Breakdown by Bank Categories

• Public Sector Banks (PSBs): GNPA ratios could rise from 3.3 per cent in September 2024 to 7.3 per cent in March 2026.

• Private Sector Banks (PVBs): GNPA ratios may increase from 1.9 per cent to 2.9 per cent during the same period.

• Foreign Banks: GNPA ratios are expected to grow from 0.9 per cent to 1.4 per cent.

Despite these projections, the report acknowledged significant asset quality improvements, with the current GNPA ratio at a multi-year low.

Risk of Delinquency from High Retail Loan Exposure

The FSR also flagged risks associated with retail loans. "Nearly half of the borrowers availing credit card and personal loans have another live retail loan outstanding, which are often high-ticket loans (i.e., housing and/or vehicle loan),” the report stated. A default in smaller personal loans could lead to larger, secured loans being classified as non-performing, thereby increasing risks of delinquency.

What is GNPA and Why Is It Relevant?

Gross Non-Performing Assets (GNPA) refer to the total value of loans where borrowers have defaulted or stopped making payments for over 90 days. It is a critical measure of a bank’s financial health, as high GNPA levels reflect inefficiencies in loan recovery, impacting profitability and overall credit growth.

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