Indian banks’ asset quality improved to decadal high: RBI

Last Updated29/12/2023

Reserve Bank of India (RBI) recently reported a continued improvement in Gross Non-Performing Assets (GNPA) ratio of Indian Scheduled Commercial Banks (SCBs).
GNPA ratio drops to a decadal low of 3.2% at end-September 2023.

During 2022-23, 45% reduction in SCBs' GNPA attributed to recoveries and upgradations.
SCBs' consolidated balance sheet records a 12.2% growth in 2022-23, driven by the fastest expansion of bank credit in over a decade.
SCBs exhibit double-digit expansion in combined balance sheets, supported by sustained credit growth.
Higher lending rates and lower provisioning requirements contribute to improved profitability and strengthened capital positions.

Banks should guard against credit losses despite higher capital buffers.
Qualitative metrics like enhanced disclosures, strong code of conduct, and clear governance structures will contribute to financial stability.
Macroeconomic uncertainties persist globally, but the Indian banking system is well-positioned for further improvement with better asset quality, high capital adequacy and robust profitability.
NBFCs should focus on broadbasing their funding sources and reduce overdependence on bank funding.
Banks and NBFCs were urged to strengthen balance sheets through robust governance and risk management practices.

A Non-performing Asset is a loan or advance for which the principal or interest payment has remained overdue for a period of 90 days.
- The NPA ratio is the proportion of such NPAs in total loans.
Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
- Substandard Assets that have remained NPA for a period less than or equal to 12 months.
- Doubtful Assets if it has remained in the substandard category for a period of 12 months.
- Loss Assets: According to the RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”