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After the Reserve Bank of India announced that the asset quality of banks has shown significant improvement in the first half of FY24, market expert Porinju Veliyath took to X (formerly Twitter) to praise the central bank on achieving this extraordinary feat.
“High NPAs reflected the sins of the past. Interestingly, those who passively oversaw reckless lending tried to play messiah by calling out the mess. It took nearly a decade of discipline, reforms, and prudence to clean up the inherited mess. Kudos to @DasShaktikanta and #RBI #ChangingIndia,” posted the expert on X.
In its Financial Stability Report (FSR) that came out on Thursday (December 28), the RBI announced that scheduled commercial banks’ gross non-performing assets (GNPAs) have dropped to a seven-year low, while net NPAs contracted to a decade low. Also, banks’ asset quality for the industrial sector improved, while there was a massive decline in large borrowers’ shares by the end of September 2023.
As per the FSR, banks’ gross NPAs continued to decline and stood at a seven-year low of 3.2% in September 2023. Meanwhile, the net NPAs stood at a ten-year low of 1.3% under which private bankers’ net NPAs were 0.8%.
“The resilience of the non-banking financial companies (NBFCs) sector improved with CRAR at 27.6%, GNPA ratio at 4.6% and return on assets (RoA) at 2.9%, respectively, in September 2023,” it added.
RBI also noted that the buoyant demand for bank credit and early signs of a revival in the investment cycle are benefiting from improved asset quality, return to profitability, and strong capital and liquidity buffers of scheduled commercial banks (SCBs).
“Macro stress tests for credit risk reveal that SCBs would be able to comply with minimum capital requirements, with the system-level CRAR in September 2024 projected at 14.8%, 13.5% and 12.2%, respectively, under baseline, medium and severe stress scenarios,” the report further said.
Further, the report highlighted that the quarterly slippage ratio which was stubbornly rising since December 2021, cooled off with considerable improvement recorded by public sector banks.
Notably, the provision coverage ratio (PCR) of the banks has been steadily rising since March last year and reached 71.5% in the September quarter. According to the data, the PCR of private banks and foreign banks exceeded 75%.
Meanwhile, the write-offs to GNPA ratio soared during the first half of FY24 on an annualised basis, after declining for two consecutive years.
As for credit growth, the report revealed that banks’ credit started picking up in H2 of FY22 and sustained its momentum, however, further gathered pace to touch a decadal high of 17.4% as on December 16, 2022 — a level last observed during 2011.
RBI said, the Indian financial sector has remained resilient, building on the consolidation of the banking sector’s balance sheet, the ongoing reduction in bad loans, and the buffering of risk-absorbing capacity.
Macro stress tests indicate that all banks would meet the regulatory minimum capital requirements even in a severe stress scenario. Stress tests indicate that some non-banking financial companies may be vulnerable to liquidity shocks. Contagion risks and consequent additional solvency losses remain limited.
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Published: 29 Dec 2023, 12:11 PM IST
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