Bank NPAs May Rise To 20 Year High – Free PDF Download

What Is NPA?

• A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

What is Financial stability report?

• RBI has released 21^st issue of the Financial Stability Report.
• It is a biannual exercise. (not biennial)

• It reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council(FSDC) on risks to financial stability.

What is FSDC?

• First mooted by the Raghuram Rajan Committee in 2008.
• Finally in 2010, the then Finance Minister, Pranab Mukherjee, decided to set up such an autonomous body dealing with-
• Macro prudential and financial regularities

What FSR says on situation of NPA?

• A stress test conducted by the Reserve Bank of India suggests that the Covid-19 crisis could push Indian banks’ gross bad loans to their highest in nearly two decades.

How The Stress Test Works?

• According to the structure of the test, the RBI considered four possible scenarios with worsening macroeconomic indicators:

1. Baseline Scenario
2. Medium Stress
3. Severe Stress
4. Very Severe Stress

• As of March 2020, the ratio stood at 5% of total advances.
• In a “very severe stressed scenario”, the gross non-performing assets of the banking sector could rise to as high as 14.7% of total loans by March 2021.
• Under the baseline scenario, the gross NPA ratio could rise to 5%.
• The RBI’s stress test covering 53 scheduled commercial banks

What is the reason?

• Pressures from the pandemic and the national lockdown are likely to significantly push up bad loans.
• The projection, which is based on the moratoriums availed till April 30.
• It has been extended till August 31.

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