(MENAFN- KNN India)
New Delhi, Jan 1 (KNN) The Reserve bank of India's latest financial Stability Report suggests that banks' gross bad loan ratio could increase to 3 percent by March 2026 from its current 12-year low of 2.6 percent, recorded in September 2024.
The report, which analyses data from 46 banks under a baseline scenario, warns that this key metric measuring the proportion of bad assets to total loans could potentially rise to 5-5.3 percent under high-risk scenarios influenced by credit quality, interest rates, and geopolitical factors.
Despite these projections, the central bank maintains a confident outlook on the banking sector's resilience. The RBI's analysis indicates that while aggregate capital ratios may decrease, all banks are expected to maintain the minimum capital requirement of 9 percent even under adverse conditions.
This stability is attributed to the sector's improved asset quality over recent years, achieved through successful recoveries, write-offs of legacy bad loans, and effective control of new bad asset formation.
The central bank has taken proactive measures to maintain financial sector stability, implementing stricter regulations for credit card and personal loans, increasing borrowing costs for non-banking finance companies, and imposing business restrictions on non-compliant lenders.
These actions align with the RBI's emphasis on strong risk management and governance frameworks, along with its push for increased capital raising by banks.
Current financial indicators present a positive picture, with banks showing improved return on equity and assets, despite narrowing net interest margins.
The report also highlights the strengthening balance sheets of non-banking finance companies, with stress tests indicating their ability to maintain capital requirements well above minimum levels even in high-risk scenarios.
The RBI's biannual Financial Stability Report, which incorporates inputs from all financial sector regulators, projects an optimistic outlook for the Indian financial system, predicting it will remain sound and vibrant, supported by improving balance sheets and robust buffers.
This assessment reflects the sector's current stability while acknowledging potential future challenges that may require careful monitoring and management.
(KNN Bureau)
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