The stress test is a forward-looking quantitative evaluation of bank capital that demonstrates how a hypothetical macroeconomic recession scenario would affect firm capital ratios. For the first several years of stress testing, CCAR was a public exercise that included a quantitative and qualitative assessment.
What happens if the bank fails the stress test?
If a bank fails the stress test, there is a regulation that mandates that such back cut the amount it pays as dividends and reduces share buybacks so that it can accumulate capital enough to withstand unfavorable economic scenarios
Results of street test on banks
A stress test conducted by RBI reveals that Indian banks have enough capital to meet regulatory requirements even in a worst-case scenario. Stress outcome NPAs dropped 5% GNPAs. If there are moderate bad loans will rise. According to RBI foreign banks are under severe stress. Results of bank-level stress show that 11 banks fail to maintain a minimum level of capital in this scenario CRAR would fall, and private and foreign banks would face lower erosion.
Effect of stress test on nonbanking companies *
In the second wave of Covid nonbanking companies showed improvement strongly. According to the report front-loaded monetary policy actions are expected, tolerance band.
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