The June Financial Stability Report of the Reserve Bank of India (RBI) has a section on stress testing of banks. RBI projected banks’ balance sheets for 2011-12 and finds that at end-March 2012, the level of gross non-performing assets (NPAs) will rise to 2.92% of advances, assuming the tighter provisioning requirements made by the central bank and 30% of standard restructured assets turning into NPAs.
While the profitability of banks is adversely affected under this baseline scenario, capital adequacy remains high. As the chart shows, it is only when NPAs rise by 50% or so that capital adequacy is affected.
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