The banking sector is resilient enough and even in a worst-case scenario where all restructured standard loans were to become non-performing assets, the stress would not be significant, a Reserve Bank of India (RBI) report has said.
"The stress tests indicate that the banking sector is comfortably resilient and, even if, in a worst-case scenario, it is assumed that all restructured standard advances were to become NPAs, the stress would not be significant," the RBI said in its Financial Stability Report, released here today.
Non-performing assets (NPA)-levels in 2008-09 had shown a northward movement after a declining trend till 2007-08, the RBI said. Restructured accounts in the standard category constituted 3.1 per cent of the gross advances as at end-December 2009.
The asset quality could come under pressure in case there are significant slippages in some of the restructured accounts, it said. But there are already signs of a broad-based recovery in bank credit and this could mitigate some potential risks that may exist consequent to the global financial meltdown, the apex bank said.
Pointing out that even during the height of the sub-prime crisis and the consequent financial turmoil, the domestic banks remained resilient, the RBI said "our banking sector is adequately capitalised, the dominant component being loss-absorbing common equity."
Highlighting the brighter aspects, the report said credit quality continued to remain robust and the share of low-cost current and savings account deposits in total deposits is high. "Banks are required to hold a minimum percentage of their liabilities in risk-free government securities. This, to a large extent, takes care of liquidity and solvency issues," the RBI said.