Motilal Oswal: RBI Projects Gross Non-Performing Assets To Increase To 12.5% For FY21

Motilal Oswal Report

The Reserve Bank of India released a financial stability report highlighting that economic prospects appear severely impacted by lockdown-induced disruptions to both supply- and demand-side factors, diminished consumer confidence, and risk aversion, etc. However, some signs of gradual recovery are becoming increasingly visible.

The RBI conducted a macro stress test analyzing the implications of slowdown in economic activity on the asset quality and capital ratios of banks. It indicated that the gross non performing assets (GNPA) ratio could escalate to 12.5% for FY21 under the baseline scenario. On the other hand, if the situation worsens, the GNPA ratio could escalate to 14.7% under the very severe stress scenario.

Contrary to this, Common Equity Tier (CET-I) could decline to 10.7% under the base case and 9.4% under the very severe stress scenario (versus current CET-I of 11.7%).

Nearly half the system loans had availed moratorium (as of April 30, 2020): 42% in Corporate, 65% in small and medium enterprise, and 55% in Retail loans. Overall, 68% of the public sector banks portfolio availed moratorium, 31% of Private Banks, and approximately 49% of Non banking financial company (NBFC)s.

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