RBI stress tests: Banks gross NPA may rise to 2.5% in March 2027 from 2.3% in March 2025

Indian Express

3 days ago

The gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) may marginally rise to 2.5 per cent in March 2027 from 2.3 per cent in March 2025, the Reserve Bank of India's Financial Stability Report (FSR) showed.
The estimate for GNPA ratio for March 2027 is based on the macro stress tests that project capital ratios of banks under three scenarios – a baseline and two adverse macro scenarios over a two-year horizon, incorporating credit risk, market risk and interest rate risk in the banking book in the framework.
'The aggregate GNPA ratio of the 46 banks may marginally rise from 2.3 per cent in March 2025 to 2.5 per cent in March 2027 under the baseline scenario and to 5.6 per cent and 5.3 per cent, under adverse scenario 1 and adverse scenario 2, respectively,' the RBI's Financial Stability Report for June 2025 showed.
While the baseline scenario is derived from the forecasted path of macroeconomic variables, the two adverse scenarios are hypothetical stringent stress scenarios. The adverse scenario 1 assumes a volatile global environment with heightened geopolitical risks and escalation of global financial market volatility. The adverse scenario 2 assumes a synchronised sharp growth slowdown in key global economies.
The report said that the soundness and resilience of SCBs are bolstered by robust capital buffers, multi-decadal low non-performing loans ratio and strong earnings.
The macro stress tests further revealed that the aggregate capital to risk-weighted assets ratio (CRAR) of 46 major SCBs may marginally dip to 17 per cent by March 2027 from 17.2 per cent in March 2025, under the baseline scenario.
It may decline to 14.2 per cent under adverse scenario 1, and to 14.6 per cent under adverse scenario 2. However, none of the banks would fall short of the regulatory minimum requirement of 9 per cent even under the adverse scenarios, the report said.
The common equity tier 1 (CET1) capital ratio of the select 46 banks may rise from 14.6 per cent in March 2025 to 15.2 per cent by March 2027 under the baseline scenario. However, it may fall to 12.5 per cent under adverse scenario 1, and to 12.9 per cent under adverse scenario 2. None of the banks would breach the regulatory minimum requirement of 5.5 per cent under any of these scenarios, the report showed.
The RBI report said that stress tests on banks' credit concentration – considering top individual borrowers according to their standard exposures – show that in the extreme scenario of the top three individual borrowers of respective banks defaulting, the system level CRAR would decline by 90 bps and no bank would face a situation of a drop in CRAR below the regulatory minimum of 9 per cent.
In this extreme scenario, four banks would experience a fall of more than two percentage points in their CRARs.
The report said that non-banking financial companies (NBFCs) remain healthy with sizable capital buffers, robust earnings and improving asset quality.
A system level stress test conducted on a sample of 158 NBFCs showed that under the baseline scenario, the system-level GNPA ratio of the sample NBFCs may rise from 2.9 per cent in March 2025 to 3.3 percent in March 2026.
Consequently, their aggregate CRAR may dip to 21.4 per cent in March 2026 from 23.4 per cent in March 2025.
Under the baseline scenario, 10 NBFCs (all in the middle layer) having a share of 2.1 per cent of total advances of all NBFCs (upper layer + middle layer) may breach the regulatory minimum capital requirement of 15 per cent.