Indian Banks Report Significant Decline in Non-Performing Assets

Indian scheduled commercial banks reported a sharp decline in both gross and net non-performing assets as of June 30, 2024, attributed to lower slippages, higher recoveries, and steady write-offs, according to CareEdge Ratings.

Net Non-Performing Assets (NNPAs) of scheduled commercial banks (SCBs) experienced a significant reduction, decreasing by 24.9 percent year-on-year (y-o-y) to Rs 1 lakh crore as of June 30, 2024, CareEdge Ratings revealed.

The gross non-performing assets (GNPAs) of SCBs also saw a decline, falling by 15.2 percent y-o-y to Rs 4.57 lakh crore as of Q1FY25 from Rs 5.66 lakh crore in the corresponding period of the previous year. The GNPA ratio now stands at 2.8 percent, down from 3.8 percent a year earlier.

This improvement is primarily due to lower slippages, higher recoveries, and consistent write-offs. The NNPA ratio reached an all-time low of 0.6 percent, down from 1.0 percent in Q1FY24. However, private banks experienced a slight increase of 3 basis points (bps) in their NNPA ratio to 0.46 percent, driven by seasonal collection weaknesses and higher retail delinquencies.

Private sector banks have successfully reduced their incremental provisioning levels due to asset quality improvements. New provisioning norms by the Reserve Bank of India (RBI) for projects under construction could affect SCBs' credit costs, with public banks expected to see a 0.2 percent rise in credit costs between FY25 and FY27, and private banks a 0.1 percent increase during the same period.

Despite these positive trends, risks such as elevated crude oil prices, potential global economic slowdown, and tightening global monetary policies could impact asset quality and profitability. SCBs' asset quality now mirrors pre-asset quality review levels, with a GNPA ratio of 2.8 percent and an NNPA ratio of 0.6 percent.

Credit offtake, which grew by 18.1 percent y-o-y in Q1FY25, is expected to stay robust, driven by economic expansion, increased capital expenditure, and government schemes like the Production Linked Incentive (PLI) initiative. However, external economic factors and RBI's proposed provisioning changes may influence future asset quality.

(With inputs from agencies.)