RBI board favours new stress-test formula
The Central Board of the RBI wants banking system stress tests to include several parameters in addition to non-performing assets (NPAs), a person aware of the matter said.
The board has discussed doing away with the singular focus on NPAs in the bi-annual stress tests for RBI’s Financial Stability Report (FSR), the person cited above said on condition of anonymity, adding multiple indicators are needed to identify emerging stress in the system.
In its latest FSR released on 11 January, RBI said gross NPAs could rise to 13.5% under the baseline stress scenario by 30 September 2021, the highest in more than 22 years, up from 7.5% as of 30 September 2020. It is predicted to almost double to 14.8% under a severe stress scenario.
“The issue has been discussed at the meetings of the central board and board of financial supervision. Irrespective of the stress tests, which are being done for so many years, RBI couldn’t avert a crisis. It has been, therefore, discussed that RBI should not go by headline figures and should instead have multiple indicators to warn them about impending stress in the system. Indicators like credit disbursement, adoption of information technology across banks, etc., can be looked at for a comprehensive stress test,” the person cited earlier said.
