India’s banking sector has witnessed continued improvement in asset quality, with the gross non-performing assets (GNPA) ratio dropping to 2.6% of total advances in September 2024, marking the lowest level in the past 12 years, according to the Reserve Bank of India’s (RBI) latest Financial Stability Report.
The net NPA ratio stood at approximately 0.6%, as stated in the RBI’s December 2024 issue of the Financial Stability Report (FSR).
“Fueled by declining slippages, higher write-offs, and steady credit demand, the GNPA ratio of 37 scheduled commercial banks (SCBs) fell to a multi-year low of 2.6%,” the report noted.
The report highlighted that the improvement in asset quality was widespread across various sectors and bank groups.
Additionally, the share of large borrowers in the GNPA of banks has steadily declined over the past two years. The asset quality of large borrower portfolios has improved significantly, with the GNPA ratio decreasing from 4.5% in March 2023 to 2.4% in September 2024.
In the large borrower segment, the proportion of standard assets in the total funded amount has consistently increased over the past two years.
“The share of the top 100 borrowers in the total GNPA has decreased to 34.6% in September 2024, signaling a growing credit appetite among medium-sized borrowers,” the report observed.
Notably, none of the top 100 borrowers were classified as NPAs as of September 2024.
The report also indicated that the profitability of SCBs improved during H1 2024-25, with profit after tax (PAT) rising by 22.2% year-on-year.
Public sector banks (PSBs) and private sector banks (PVBs) recorded PAT growth of 30.2% and 20.2%, respectively, while foreign banks (FBs) experienced a modest growth of 8.9%.
The soundness of SCBs has been strengthened by robust profitability, declining non-performing assets, and solid capital and liquidity buffers. Both return on assets (RoA) and return on equity (RoE) are at decadal highs, while the GNPA ratio has fallen to a multi-year low, the report added.
The RBI also noted that the Banking Stability Indicator (BSI), which assesses the resilience of the domestic banking system, showed further improvement during the first half of 2024-25.
The resilience of India’s banking system has been further supported by strong capital buffers, solid earnings, and sustained improvements in asset quality, according to the report.
(Inputs from IANS)