The economic downturn caused by the COVID-19 pandemic can lead to a rise in bad loans for banks , the Reserve Bank of India (RBI) said in its Financial Stability Report for January 2021. As of September 2020, the gross non-performing assets (GNPA) ratio across all scheduled commercial banks stood at 7.5%. Under the baseline scenario, the RBI stress tests indicate that the GNPA ratio could rise to 13.5% by September 2021. If the current macroeconomic environment worsens, banks could see a rise in bad loans and the ratio could grow to 14.8% by September 2021, it said. "These GNPA projections are indicative of the possible economic impairment latent in banks’ portfolios, with implications for capital planning. A caveat is in order, though: considering the uncertainty regarding the unfolding economic outlook, and the extent to which regulatory dispensation under restructuring is utilised, the projected ratios are susceptible to change in a non-linear fashion." RBI Financial Stability Report January 2021 The RBI acknowledges that overall, the GNPA and net NPA ratio of banks have continued to decline over the last two years, with fresh slippages during the July to September 2020 quarter pegged at 0.15%. "The improvement was aided significantly by the regulatory dispensations extended in response to the COVID-19 pandemic," the RBI said. While public sector banks (PSBs) could see their GNPA ratio grow from 9.7% in September 2020 to 16.2% in September 2021 under the baseline scenario, the GNPA ratio of private banks could increase from 4.6% in September…
