Though Indian markets at the time of writing the story have recovered a fair bit from the day's low, Bank Nifty is down 2.55% as against Sensex which is 0.55% down. Infact it is the banking and financial pack which is weighing on the indices.
The sharp decline comes after RBI's Financial Stability Report that came on July 24, 2020.
In the report it is mentioned that in the worst case scenario, banks' GNPA could increase 14.7% of the overall loans by March 2021. In a base case scenario, the GNPAs could rise to 12.5 percent by March next year, the RBI said.
"Macro stress tests for credit risk indicate that the GNPA ratio of all SCBs may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario; the ratio may escalate to 14.7 per cent under a very severely stressed scenario," the RBI said.
"The regulatory dispensations that the pandemic has necessitated in terms of the moratorium on loan instalments and deferment of interest payments may have implications for the financial health of SCBs, going forward," the RBI added.
"Given the fact that the impact of the moratorium is still uncertain and evolving, the exact nature of how the same will play out on the quality of banking assets is difficult to ascertain accurately. Therefore, this will only be ascertainable with the passage of time, and outcomes would be disseminated in the forthcoming publications of RBI, from time to time," said the RBI report.
All of the index constituents barring Kotak Mahindra Bank are pulling the sectoral index lower, with maximum decline in the stock of ICICI Bank.