RBI’s bank NPA projections have been consistently inaccurate since June 2015: Report

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RBI’s bank NPA projections have been consistently inaccurate since June 2015: Report

The Reserve Bank of India’s (RBI) estimates of the gross non-performing asset (GNPA) ratio, in severe stress scenarios, for the quarter ahead have been inaccurate five out of six times in its financial stability reports (FSR) since FY16, according to a report in The Financial Express. Actual GNPA ratio of commercial banks came above projections in all editions of RBI’s FSR between June 2015 and December 2017, except the March 2017 edition.

On March 31, 2017, GNPAs as a share of bank loans stood at 9.6 percent, significantly below RBI’s baseline projection of 9.8 percent in its December 2016 report.

The central bank’s prediction was most off the mark in the quarter ended March 2016, when the actual GNPA ratio (7.6 percent) was 250 basis points higher than the report’s projections for a severe stress scenario. During this period, the central bank had also conducted an asset quality review (AQR), which was aimed at cleaning up the lenders’ balance sheets.

RBI derives stress scenarios on the basis of standard deviations in the historical values of macroeconomic variables separately.

The central bank released the FSR report in December 2018 for March 2019, which filled the banking sector with hope. The June 2018 edition had pegged GNPA ratio to be 12.2 percent at the end of March 2019, up from March 2018’s 11.6 percent. However, the report released earlier this week revised predictions downwards to 10.3 percent under the baseline scenario and 10.8 percent under severe stress.

RBI Governor Shaktikanta Das said after a long period of stress, the banking sector is finally going to start recovering. “Stress test results suggest further improvement in NPA ratio, though its current level remains still high for comfort. The significant costs wrought by the enhanced recognition of asset impairment in public sector banks appears to have led to greater discipline in credit assessment, higher sensitivity to market risk and a better appreciation of operational risks,” he remarked in the foreword of the report.

Images are for reference only.Images gathered automatic from google.All rights on the images are with their original owners.

2019-01-04 16:09:33

Images are for reference only.Images gathered automatic from google.All rights on the images are with their original owners.

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