Stress Testing of Non Performing Assets in Priority Sector Lending : An Impact Assessment of SBI Portfolios

This study provides a framework for establishing Stress Test on NPAs among Priority Sector. As State Bank of India is the leading Public Sector Bank in the country, its exposure to NPAs specifically to sector based exposure on outstanding amounts and its prediction could be a guiding post for further research. In this paper, the exposure across multiple priority sectors of SBI is binned in line with economic activity. Totally eight clusters are created and 20 models are created to predict economic attributes and cluster specific stress testing equation. The study identified econometric determinants and found significant relationship to select clusters with multiple components of GDP. Finally, the researchers have created six scenarios including severely Adverse and Most Promising. The study has also established key insights on overall exposure and its impact on NPAs under Six Scenarios. The approach to stress test is likely to help risk managers in internally developing a framework specific to their banks