Asset quality of Indian banks improves to decadal high


  • According to the Reserve Bank of India’s (RBI’s) report titled ‘Trend and Progress of Banking in India’, the Gross Non-Performing Assets (GNPA) ratio of Indian scheduled commercial banks (SCBs) are improving in the second quarter of this financial year which is a fresh decadal low.

Other findings of the report:

  • The improvement in asset quality which is measured by GNPA ratios began in 2018-19 continued during the FY 2022-23.
  • As per RBI, the GNPA ratio of SCBs decreased to a decadal low of 3.9% at end-March 2023 and further up to 3.2% at end-September 2023.
  • About 45% of reduction in GNPAs of SCBs was contributed by recoveries and upgradations in 2022-23.
  • The combined balance sheets of commercial banks expanded in double digits which is driven by sustained credit growth in FY 2022-23.
  • Apart from the growth factor, higher lending rates and lower provisioning requirements helped to improve the profitability of banks.
  • The capital to risk weighted assets ratio (CRAR) of SCBs was noted at 16.8% at end-September 2023.
  • Nearly all SCB groups met the regulatory minimum requirement and the common equity tier 1 (CET1) ratio requirement as per RBI norms.
  • Also the consolidated balance sheet of non-banking financial companies (NBFCs) expanded by about 14.8% in 2022-23.

What are NPAs?

A non-performing asset (NPA) is described as a loan or advance for which the principal or the interest payment remained overdue for a period of minimum 90 days.

There are various categories under NPAs which are listed below:

  1. Substandard assets:These are the assets which has remained NPA for a period less than or equal to 12 months.
  2. Doubtful assets:An asset would be classified as doubtful asset if it has remained in the substandard category for a period of 12 months.
  3. Loss assets: According to RBI, Loss asset is considered as uncollectible and of such little value that its continuance as a bankable asset is not warranted, even though there may be some salvage or recovery value.

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