MUMBAI: Gross non-performing assets (GNPAs) of banking system is likely to drop to 4 per cent by March 2016 with expected improvement in macroeconomic indicators going forward, the Reserve Bank said today.

“The macro stress tests for credit risk suggest that under the baseline scenario, which assumes improvement in the overall macroeconomic scenario during the next financial year, the GNPA ratio of all SCBs may decline to 4 per cent by March 2016 from 4.5 per cent as at end September 2014,” the Reserve Bank said in its Financial Stability Report (FSR) here.
The report, however, warned that if macroeconomic conditions deteriorate, the GNPA ratio of scheduled commercial banks (SCBs) may increase further and under a severe stress scenario it could rise to around 6.3 per cent by March 2016.

“Under such a severe stress scenario, the system level CRAR (capital to risk weighted asset ratio) of banks could decline to 9.8 per cent by March 2016 from 12.8 per cent in September 2014.”

The net non-performing advances (NNPAs), as a percentage of total net advances, increased to 2.5 per cent in September 2014 from 2.2 per cent in March 2014.

Stressed advances, including GNPAs and restructured standard advances, increased to 10.7 per cent of the total advances from 10 per cent between March and September 2014.

PSBs ( public sector banks) continued to record the highest level of stressed advances at 12.9 per cent of their total advances in September 2014, followed by their private peers at 4.4 per cent.

The asset quality of PSBs is expected to improve, but they will continue to carry the highest GNPA ratio among the bank groups, the report said.

“Under a severe stress scenario, PSBs may record the lowest CRAR of around 9.2 per cent by March 2016 as against 11.3 per cent in September 2014, close to the minimum regulatory capital requirement of 9 per cent.”

The stress test revealed that among the seven select sectors, engineering is expected to register the highest GNPA ratio at 12 per cent by March 2016, followed by the cement segment at 10.6 per cent, it added.