The gross non-performing asset (GNPA) ratio of banks has fallen from 7.4% in March 2021 to a six-year low of 5.9% in March 2022, the Reserve Bank of India (RBI) said in its latest financial stability report (FSR).

Banks have, however, restructured their retail and MSME loans, which may be masking the actual level of NPAs. Restructured assets constituted 2.4% each of the advances under MSME and retail sectors, the data from the report showed. Large corporate accounts were not restructured under the special restructuring window that RBI had opened to cushion the impact of the coronavirus pandemic.

According to bankers, the repayments on the restructured accounts have been encouraging. Retail and MSME asset pools are also getting sold to asset reconstruction companies (ARCs) to clean up the balance sheet of banks.

Stress tests indicate that the GNPA ratio of scheduled commercial banks (SCBs) may further improve to 5.3% by March 2023, the FSR, which is a biannual report card on the health of the banking system, said. This is driven by higher-than-expected bank credit growth and a declining trend in the stock of GNPAs, among other factors.

In the severe stress scenario, the GNPA ratio of public sector banks may increase from 7.6% in March 2022 to 10.5% a year later. In case of private sector banks, this could go up from 3.7% to 5.7.%. For foreign banks, the GNPA ratio could increase from 2.8% to 4% during the same period.

The RBI’s support measures provided during the Covid-19 pandemic aided in arresting GNPA ratios of SCBs even with the winding down of regulatory reliefs.

The SCBs maintained strong capital positions with the Capital to Risk-weighted Assets Ratio (CRAR) rising to a new high of 16.7% in March 2022. The Common Equity Tier 1 (CET-1) Ratio was at 13.6%. Meanwhile, the provisioning coverage ratio (PCR) rose to 70.9% in March 2022 from 67.6% a year ago.

"Macro-stress tests for credit risk reveal that SCBs are well-capitalised and all banks would be able to comply with the minimum capital requirements even under adverse stress scenarios," the report said.

"The innate strength and resilience of our macro fundamentals are catalysing a steady recovery. The financial system is well-capitalised and returning to profitability. The corporate sector is deleveraged with stronger bottom lines. The external sector is well-buffered to withstand the ongoing terms of trade shocks and portfolio outflows," RBI Governor Shaktikanta Das said in the FSR.

"Notwithstanding the challenges from global spillovers, the Indian economy remains on the path of recovery, though inflationary pressures, external spillovers and geopolitical risks warrant careful handling and close monitoring," Das added.

Das notes that the risks of stagflation are rising and that it is now transitioning from a risk scenario to a baseline scenario.

"Stagflation risks are mounting for EMEs (emerging market economies) and advanced economies (AEs) alike as tightening financial conditions threaten to restrain the pace of growth with inflationary pressures."

In case of fintechs, delay in loan repayments and defaults has halved from its peak of 4.83% in September 2021 to 2.26 % in March 2022, according to the report.

According to the data by credit information company TransUnion CIBIL quoted in RBI's FSR, fintech delinquencies were higher than that of private sector banks and non-banking financial companies (NBFCs) or housing finance companies (HFCs) during the peak in September last year.

As per data for March this year, delinquency levels in NBFCs and housing finance companies (HFCs) stand higher at 2.34%, while private bank defaults are far behind at 1.40%.

The data is based on repayments due past 90 days, which in banking are categorised as NPAs. TransUnion CIBIL’s fintech category comprises NBFCs registered with RBI and active in the digital lending category, as well as peer-to-peer lending platforms.