Indian financial system sound but Covid could spike bad loans: RBI

Gross NPAs of banks may rise from 8.5% this March to 12.5% by March 2021 but could worsen to 14.7% under very severely stressed scenarios. However, no bank will fail, apex vank says in FSR

The banking system is safe and resilient, thanks to the higher capitalisation and shrinking inter-bank linkages, but the Covid-19 crisis could push up non-performing assets quite significantly, warned the Reserve Bank of India (RBI) in the bi-annual Financial Stability Report (FSR) released on Friday.  

While the downside risk to economic recovery is high, there are early signs of recovery, and “we need to remain extremely watchful and focused,” wrote RBI governor Shaktikanta Das in the foreword of the report. 

The gross NPA ratio of banks may increase from 8.5 per cent in March to 12.5 per cent by March 2021 under the