RBI might think otherwise, but Indian banks may see NPAs mount to 20% soon

Putting too much faith in the RBI's stress test could end up misleading investors

Imagine India’s GDP growth had collapsed to 3 per cent; inflation was about to hit double digits; exports were tanking; and the country’s twin deficits – in the government’s budget, and in the nation’s current account – were out of control.

It’s only when the Reserve Bank of India tries to imagine such a dire scenario for March 2019 that its simulation exercise for bad loans throws up a figure of 17.3 per cent of state-run banks’ total assets. Since most reasonable investors would dismiss the possibility of economic ruin lurking just around the corner, they’re likely to take comfort from