The banking sector continues to face "significant" level of stress as the asset quality has deteriorated further with the banks' gross non-performing advances increasing to 9.1 per cent in September from 7.8 per cent in March, says the RBI.
"The gross non-performing advances (GNPAs) ratio of Scheduled Commercial Banks (SCBs) increased to 9.1 per cent from 7.8 per cent between March and September 2016, pushing the overall stressed advances ratio to 12.3 per cent from 11.5 per cent," the Financial Stability Report (FSR) released by the RBI said today.
It said given the higher levels of impairment, the banks may remain risk averse in the near future as they clean up their balance sheets and their capital position may remain insufficient to support higher credit growth.
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During the period, the asset quality of large borrowers deteriorated significantly as the share of special mention accounts (SMA)-2 increased across bank-groups.
The share of large borrowers' in SCBs' total loan portfolio declined between March and September 2016, whereas, their share in GNPAs increased during the same period, the report said.
It also said according to the stress test, under the baseline scenario, the gross NPA ratio may increase from 9.1 per cent in September 2016 to 9.8 per cent by March 2017 and further to 10.1 per cent by March 2018.
"If the macroeconomic conditions deteriorate, the GNPA ratio may increase further under such consequential stress scenarios," the report said.
It said among the bank groups, PSBs may continue to register the highest GNPA ratio.
Under baseline scenario, the PSBs' GNPA ratio may increase to 12.5 per cent in March 2017 and then to 12.9 per cent in March 2018 from 11.8 per cent in September 2016, which could increase further under a severe stress scenario, the report highlighted.
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