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Asset quality of Indian banks improves to decadal high

Context:

  • 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.

The post Asset quality of Indian banks improves to decadal high appeared first on Vajirao IAS.

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