Gross NPAs of banks decline to 12-year low of 2.65: RBI report

The RBI also flagged concern over a sharp rise in write-offs, especially among private sector banks (PVBs), which could be partly masking worsening asset quality in unsecured lending segment and dilution in underwriting standards.

The net NPA ratio or the proportion of net non-performing assets in net loans and advances was at around 0.6 per cent, according to the RBI’s December 2024 issue of the Financial Stability Report (FSR).

The Financial Stability Report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on the resilience of the Indian financial system and risks to financial stability.

“Buoyed by falling slippages, higher write-offs and steady credit demand, the gross nonperforming assets (GNPA) ratio of 37 scheduled commercial banks (SCBs) fell to a multi-year low of 2.6 per cent,” the report said.

Fresh accretion of NPAs in retail loan portfolios was also dominated by slippages in the unsecured loan book, with 51.9 per cent from unsecured loans as of September 2024.

The improvement in asset quality of SCBs was broad-based across sectors and bank groups.

The report also said that the banking system liquidity coverage ratio (LCR) declined from 135.7 per cent in September 2023 to 128.5 per cent in September 2024, driven by an increase in net cash outflows, which, in turn, is influenced by a rise in less stable sources of funding.

According to the FSR, the share of large borrowers in the GNPA of SCBs has steadily declined over the past two years. The asset quality of banks’ large borrower portfolios has improved considerably, with the GNPA ratio falling from 4.5 per cent in March 2023 to 2.4 per cent in September 2024.

In the large borrower segment, the share of standard assets in the total funded amount has consistently improved over the past two years.

“Within the large borrowers’ cohort, the share of top 100 borrowers has decreased to 34.6 per cent in September 2024, reflecting a growing credit appetite among medium-sized borrowers,” the report said.

Notably, none of the top 100 borrowers are classified as NPAs in September 2024.

In terms of value, investment grade advances (rated BBB and above) constituted 91.5 per cent of the funded advances to large borrowers with long-term external ratings, the report said.

It further said profitability of SCBs improved during H1:2024-25, with profit after tax (PAT) surging by 22.2 per cent (y-o-y).

Public sector banks (PSBs) and PVBs recorded PAT growth of 30.2 per cent and 20.2 per cent, respectively, while foreign banks (FBs) experienced single-digit growth (8.9 per cent).

RBI said the banking stability indicator (BSI), which provides an assessment of the resilience of the domestic banking system, showed further improvement during H1:2024-25.

The resilience of the domestic banking system has been bolstered by robust capital buffers, strong earnings and sustained improvement in asset quality, it added.

The RBI also said the aggregate GNPA ratio of the 46 banks may rise from 2.6 per cent in September 2024 to 3.0 per cent in March 2026 under the baseline scenario and further to 5.0 per cent and 5.3 per cent, respectively, under adverse scenario 1 and adverse scenario 2.