Banks' gross NPAs likely to improve to 1.9% by FY27, Pg4

Key Highlights:

• RBI's stress test projects Gross Non-Performing Assets (GNPA) of scheduled commercial banks (SCBs) to potentially improve to 1.9% by March 2027 from 2.1% in September 2025.
• The projection is based on macro stress tests assessing bank resilience under adverse macroeconomic shocks.
• Under adverse scenarios, GNPA may rise to 3.2% and 4.2%, respectively.
• The Capital to Risk-Weighted Assets Ratio (CRAR) of 46 major banks may decline from 17.1% in September 2025 to 16.8% by March 2027 under the baseline scenario.

Detailed Insights:

• The GNPA ratio hitting a multi-year low of 2.1% as of September 2025 indicates improved asset quality in Indian banks.
• Adverse scenario 1 considers a gradual slowdown in global growth leading to a drop in domestic GDP growth and a moderate rise in domestic inflation.
• Adverse scenario 2 assumes global trade uncertainties and unfavorable trade deals would result in a sharp dent in domestic GDP growth.
• Despite potential declines in CRAR under adverse scenarios, all banks are expected to maintain the minimum CRAR requirement of 9%.
• The Common Equity Tier 1 (CET1) ratio may marginally improve under the baseline scenario but decrease under adverse conditions, while still meeting minimum requirements.

Key Concepts Involved:

• Gross Non-Performing Assets (GNPA): Percentage of a bank's gross loans that are not generating income (overdue for 90+ days).
• Capital to Risk-Weighted Assets Ratio (CRAR): A measure of a bank's capital in relation to its risk-weighted assets, indicating financial strength.
• Common Equity Tier 1 (CET1) ratio: A ratio that measures a bank's core equity capital against its total risk-weighted assets.