Reserve Bank of India (RBI) in its annual report said that current economic scenario could increase the gross non-performing assets (NPAs) of the banking system. “Going forward, the stress tests carried out by the Reserve Bank suggest that under the baseline assumption of the current economic situation prevailing, the gross NPA ratio of scheduled commercial banks may increase further in 2018-19,” RBI said in the report released on Wednesday.

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On a positive note, the central bank said that the gross domestic product (GDP) growth this fiscal is expected to increase to 7.4% from 6.7% in the previous year, with risks evenly placed. The acceleration in growth is also expected to help the banking sector which is reeling under a severe stress due to the spurt in NPAs and poor credit growth.

Going forward, the uptick in credit growth is likely to be supported by the progress being made under the aegis of the Insolvency and Bankruptcy Code, 2016 in addressing stress on balance-sheets of both corporates and banks, recapitalisation of public sector banks (PSBs) and a positive outlook on the economy, RBI added. “The prevailing negative credit-to-GDP gap indicates that there is sufficient scope for credit absorption and expansion in bank lending on a sustained basis,” it said in the report.

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According to RBI, the stressed assets, i.e, gross non-performing assets (GNPAs) plus restructured standard advances, in the banking system remained elevated to 12.1% of gross advances at the end of last fiscal.