The asset quality of India’s banks has reached a 12-year high, with gross non-performing assets (GNPA) declining to 2.6% of total advances as of September 2024, according to the Reserve Bank of India’s (RBI) latest Financial Stability Report (FSR).
Decline In NPAs Driven By Key Factors
The improvement in GNPA levels was attributed to falling slippages, higher write-offs, and steady credit demand. The report highlighted that the GNPA ratio for 37 scheduled commercial banks (SCBs) has reached its lowest level in over a decade.
Similarly, the net NPA ratio stood at an impressive 0.6%, reflecting the overall strengthening of the banking sector.
Broad-Based Improvement Across Bank Groups
The report noted that the improvement in asset quality was broad-based, encompassing various sectors and bank groups. A significant reduction in the share of large borrowers’ GNPAs further drove this trend. The GNPA ratio for large borrower portfolios dropped sharply from 4.5% in March 2023 to 2.4% in September 2024.
Moreover, the share of standard assets in the total funded amount for large borrowers has consistently risen over the past two years. Within this cohort, the proportion of the top 100 borrowers decreased to 34.6% by September 2024, indicating a growing credit appetite among medium-sized borrowers. Notably, none of the top 100 borrowers were classified as NPAs during this period.
Bank Profitability at Record Levels
The profitability of scheduled commercial banks improved significantly in the first half of 2024-25. Profit after tax (PAT) surged by 22.2% year-on-year, with public sector banks (PSBs) leading the charge, recording a PAT growth of 30.2%. Private banks (PVBs) followed closely with 20.2% growth, while foreign banks (FBs) saw single-digit growth of 8.9%.
Return on assets (RoA) and return on equity (RoE) reached decadal highs, reflecting the soundness of SCBs. These metrics, combined with declining NPAs and strong capital and liquidity buffers, underscored the sector’s resilience.
Banking Stability Indicator Reflects Robust Resilience
The RBI’s Banking Stability Indicator (BSI) showed further improvement during the first half of 2024-25, reinforcing the domestic banking system’s resilience. Strong profitability, robust capital buffers, and sustained improvements in asset quality have bolstered the stability of SCBs, the report stated.
India’s banking sector continues to strengthen on the back of declining NPAs, rising profitability, and robust capital adequacy.
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