A stress test by the regulator before the virus epidemic revealed that the number of non-performing loans in September 2020 could drop from 9.3% in September of last year to 10.5% of total loans, worse to worse under stress. ”
As industry and policymakers assess the damage to the banking system caused by the Coronavirus, an available phase, according to previous forecasts, shows that in the worst case of a macroeconomic downturn, bad credit can increase by 120 points for private banks at maximum risk.
A stress test performed by the regulator before the virus epidemic revealed that the number of bad debts in September 2020 could drop from 9.3% in September of last year to 10.5% of the total, serious at worst of stress”. “With moderate stress”, it could reach 10.2%, as predicted in the report on financial stability published in December.
“Banks need to look over residential mortgage loans that require EMI reviews,” said Madan Sabnavis, chief economist at CARE Ratings. “ SMEs, airlines, hotels, tour operators, restaurants and retailers would be the hardest hit as demand would drop to zero. Durable consumer goods for the automotive industry will be affected as demand decreases. The construction and real estate sectors will also experience negative developments. “”
In times of intense stress, it is assumed that economic growth will fall to 2.9% in FY20 and to 3% in FY 21. Undoubtedly, the results of the stress tests, they are performed with coronavirus closures, could give a completely different picture.
In the severe stress scenario, the Financial Stability Report indicates that the gross NPA of the public sector banking group could drop from 12.7% to 13.5% and that of private lenders from 3.9% to 5.4%.
From today’s point of view, the blockade is proposed for the next 10 days, which will certainly cause the economy to close. This has raised concerns about job losses and wage cuts. For banks, this can affect credit growth and lead to new defaults.
But make no mistake, COVID-19 has already started working, according to economists. The central bank’s response to events may be essential.
Inflation can increase when supply is cut off. It will be interesting to see how RBI adjusts inflation and growth compensation, “said Partha Ray, professor of economics at the IIMC.
Standard and poor’s reduced India’s growth forecast for FY20 from 5.7% to 5.2%. According to Fitch Ratings, India could grow by 5% this fiscal year. India’s GDP growth in the third quarter through December 2019 fell to 4.7% from the revised second quarter estimate of 5.1%.
Lenders from all walks of life have asked the regulator for simpler NPA and delivery rules to overcome the emerging scenario and the likely lack of demand for credit.