Gross NPAs of Indian banks fall to 7-year low: RBI
What's the story
Bad loans or non-performing assets have made life harder for Indian banks for a long time. However, banks have been trying to bring them down.
It seems that their efforts weren't in vain. Per the RBI financial stability report (FSR), the gross non-performing asset (GNPA) ratio of scheduled commercial banks (SCBs) fell to a seven-year low of 5% in the first half of FY23.
Context
Why does this story matter?
There was a time when India's banking sector went through struggle after struggle. The RBI report about the decline in the GNPA ratio of banks suggests that those times are over.
If the macroeconomic conditions don't worsen, we will see a further decline. This improvement in the GNPA ratio was aided by a decrease in slippage, write-offs, and an improvement in loan growth.
NPA
Net NPA at a 10-year low of 1.3%
Per the latest FSR, the asset quality of banks has improved. GNPA continued its steady decline and reached 5% in September 2022. Meanwhile, the net NPA (NNPA) touched a 10-year low of 1.3% in September.
The NNPA of private bankers was further down at less than 1%. The report also forecasted that the GNPA ratio of SCBs may improve to 4.9% in September 2023.
Borrowing
GNPA ratio of large borrowers has declined
The FSR shows a clear decline in the GNPA of large borrowers. Compared to 10.1% in March 2021, it stood at 6.4% in September.
This can be attributed to the decrease in advances by banks to them. Meanwhile, the advances from banks to the top 100 borrowers continued to increase.
The GNPA of top borrowers declined to 5.4% in September from 6.8% in March.
Future outlook
RBI is wary of global headwinds and looming recessionary risks
In the 26th issue of FSR, RBI painted a glum picture of the global economy. According to the central bank, recessionary risks are taking shape.
Per the report, sound macroeconomic fundamentals and healthy balance sheets are providing the Indian economy strength and resilience.
RBI Governor Shaktikanta Das spoke about the readiness of the central bank to make necessary interventions if required in the foreword.