Banks’ bad loans could rise to 9.8% by March 2022: RBI

MUMBAI: Non-performing loans at scheduled commercial banks in the country could rise to 9.8 per cent by March 2022 from 7.48 per cent in March 2021, the Reserve Bank of India said in its July Financial Stability Report released on Thursday.

The central bank said that in the severe stress scenario, bad loans at the banks could rise to as high as 11.22 per cent by March 2022. However, the report also said that lenders have sufficient capital at aggregate and individual levels to deal with the situation.

“Going forward, as banks respond to credit demand in a recovering economy, they will need to reinforce their capital and liquidity positions to fortify themselves against potential balance sheet stress,” the RBI said.

The capital to risk-weighted assets ratio of Indian banks increased to 16.03 per cent and the provisioning coverage ratio stood at 68.86 per cent in March 2021, the Financial Stability Report found.

The RBI said that monetary, regulatory and fiscal policy measures have helped curtail the solvency risk of financial entities, stabilise markets and maintain financial stability despite a ferocious second wave of Covid-19 infections in the country.

In the January edition of its Financial Stability Report, the central bank had said that bad loans of all banks could jump to 13.5 per cent by September 2021 and in the severe stress scenario, they could go as high as 14.8 per cent.

At the time, the central bank had highlighted the need for banks to proactively raise capital to “withstand possible asset quality deterioration”.