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RBI’s Report Reveals Decadal Peak in Asset Quality for Indian Banks


Why is it in the news?

  • In the second quarter of FY24, the Gross Non-Performing Assets (GNPA) ratio of Indian scheduled commercial banks (SCBs) experienced a continuous improvement, reaching a decadal low, as reported by the Reserve Bank of India’s ‘Trend and Progress of Banking in India’

Key Findings of RBI Report

  • The asset quality of Indian scheduled commercial banks (SCBs) showed consistent improvement from the fiscal year 2018-19 to 2022-23, as indicated by Gross Non-Performing Assets (GNPA) ratios.
  • The GNPA ratio for SCBs dropped to 3.9% in March 2023 and further decreased to 3.2% in September 2023, marking a decade-low in non-performing assets.
  • About 45% of the decline in SCBs’ GNPA during 2022-23 was attributed to recoveries and upgradations, reflecting positive trends in asset recovery.
  • In the fiscal year 2022-23, the consolidated balance sheet of SCBs (excluding Regional Rural Banks) witnessed a significant 12.2% growth, the highest in nine years. The primary driver of this expansion on the asset side was the rapid growth of bank credit, reaching its fastest pace in over a decade.
  • Non-Banking Financial Companies (NBFCs) experienced a 14.8% expansion in their consolidated balance sheet during the fiscal year 2022-23, driven by double-digit credit growth.
  • The RBI emphasized the role of qualitative metrics, including improved disclosures, robust code of conduct, and transparent governance structures, in contributing to financial stability.
Gross Non-Performing Assets (GNPA) Ratio

·       GNPA refers to the total value of non-performing loans (NPLs) or bad loans held by a bank.

·       Calculated by dividing the total value of GNPA by the total value of gross advances (loans) made by the bank, expressed as a percentage.

·       GNPA ratio is a critical indicator of a bank’s asset quality, closely monitored by regulators and investors to assess the financial health and risk profile of the banking sector.

·       A lower GNPA ratio is generally considered favourable, indicating a healthier loan portfolio and better management of credit risk.

 

(Note: Non-Performing Loans (NPLs) are loans for which payments have not been made for a minimum period of 90 days)

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