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NPA Ratio of the country’s banking system could rise to 13.5 % by September

The second wave of COVID-19 in India and restrictions imposed by state governments are also seen as a negative for banking stocks as investors fear companies or even individuals may find it difficult to pay the loans and interest on time, which will put pressure on the asset quality of the lenders. In the current situation, Nifty is now 5 per cent down from its peak of 15,431.75, hit in February, Nifty Bank has come down 15 per cent from its peak of 37,708.75. PSU banks have fallen the most as the Nifty PSU Bank index is down 23 per cent from its peak, the Nifty Private Bank index is down 15 per cent.
Stress tests by the Reserve Bank of India (RBI) indicate that the gross NPA ratio of the country’s banking system could rise to 13.5 per cent by September 2021 from 7.5 per cent in September 2020. If the macroeconomic environment worsens and leads to a severe stress scenario, the ratio can surge to 14.8 per cent. Experts believe that Investors will focus on their asset quality after the Supreme Court lifts its direction on non-performing asset (NPA) recognition.

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