Indian banks may see bad loans double despite signs of an improvement in the economic impact of the COVID-19 pandemic, a report from the Financial Stability and Development Council said on Monday.
The gross Non-Performing Assets of banks may increase from 7.5% in September 2020 to 14.8% under a severe stress scenario. Even under a baseline scenario it may rise to 13.5% by September 2021, the council said.
"It is assessed that the worst is behind us, though the recovery path remains uncertain," the council's Financial Stability Report released by the Reserve Bank of India said.
The council is an umbrella group of regulators and releases the FSR report twice yearly to give a detailed overview on the health of the Indian financial system.
RBI Governor Shaktikanta Das said in his foreword to the report that maintaining the financial health of banks remained a priority and that lenders must look at raising capital and altering their business models to sustain future expansion.
The report also highlighted the challenges to the banks' capital positions and said four lenders might fail to meet the capital requirement by September under a baseline scenario and could rise to nine banks in a severe stress scenario.
The central bank did not give the names of the lenders it was concerned about nor elaborate on the different scenarios.