The Reserve Bank on Friday said the country's financial system remains stable despite the economic slowdown. "India's financial system remains stable notwithstanding weakening domestic growth," the central bank said in its Financial Stability Report.

Share Market Live

NSE

According to the report, economic uncertainty and geopolitical risks persist for the banking sector and exports may face headwinds if global slowdown sustains.

However, the perception of risks on various fronts like domestic growth, fiscal, corporate sector and banks' asset quality increased between April and October 2019.

The country's GDP slowed to a six-year low of 4.5 percent in the second quarter of FY20, forcing the RBI to slash its growth forecast by 240 basis points to 5 percent for the fiscal in its December monetary policy review.

The central bank report pointed out that the gross non-performing asset ratio of banks may increase to 9.9 percent by September 2020 from 9.3 percent in September 2019.

The gross NPA ratio of banks stood at 9.3 percent in March 2019. "The stress tests indicate that under the baseline scenario, the GNPA ratios of banks may increase to 9.9 percent by September 2020, due to change in macroeconomic scenario, marginal increase in slippages and the denominator effect of declining credit growth," the RBI said.

Commenting on the report, Sudipto Mundle, Distinguished Fellow of National Council of Applied Economic Research, told CNBC-TV18 that he was not sure the country had bottomed out on the NPA problem yet. “Things might get worse before they get better, but the positive in all this is that the NPA situation for the private sector banks is actually much healthier compared to the public sector banks; their share of markets, their share of credit everything has been rising quite rapidly. So that shift in balance is towards a healthier banking sector though still there is a long way to go because the public sector banks are so dominant,” he observed.

The report said state-run banks' GNPA ratios may increase to 13.2 percent by September 2020 from 12.7 percent in September 2019, whereas for private banks it may climb to 4.2 percent from 3.9 percent, under the stress scenario.

The foreign banks' gross bad loans may increase to 3.1 percent from 2.9 percent in September 2019.

The report said banks' net non-performing assets (NNPA) ratio declined in September 2019 to 3.7 percent, reflecting increased provisioning. The aggregate provision coverage ratio (PCR) of all banks rose to 61.5 percent in September 2019 from 60.5 percent in March 2019.

PCRs of both state-run banks and private banks increased in September 2019. "Following the recapitalisation of state-run by the government, banks capital to risk-weighted assets ratio (CRAR) improved to 15.1 percent in September 2019 from 14.3 percent in March 2019," the report noted.

First Published:Dec 27, 2019 8:35 PM IST