Macro stress tests for credit risk reveal that all banks in India would be able to comply with the minimum capital requirements even under severe stress scenarios, according to Michael Debabrata Patra, Deputy Governor, Reserve Bank of India.
“Macro stress tests for credit risk reveal that all banks in India would be able to comply with the minimum capital requirements even under severe stress scenarios. The system-level capital ratio under the baseline, medium and severe stress scenarios is projected at 16.1 per cent, 14.7 per cent and 13.3 per cent, respectively, by March 2024, well above the regulatory minimum of 9 per cent,” Patra said at the 16th SEACEN-BIS High Level Seminar hosted by the National Bank of Cambodia at Seim Reap, Cambodia
“Furthermore, stress tests on banks’ credit concentration — considering top individual borrowers according to their standard exposures — show that even in the extreme scenario of the top three individual borrowers failing to repay, no bank would face a drop in the capital ratio below the regulatory requirement of 9 per cent, although two banks would see a decline in the capital ratio below the regulatory minimum inclusive of the CCB requirement (11.5 per cent).” he added
Patra said bank credit is monitored as a lead indicator of overheating. “Our assessment, based on a menu of approaches, indicates that current rates of credit expansion are not pointing to systemic stress building up — warning lights flash in the Indian context at growth rates of 16-18 per cent”