India's Commercial Banks Achieve 12-Year Low in Gross NPAs

The RBI's Financial Stability Report reveals a significant drop in the gross non-performing assets (NPAs) of commercial banks in India to a 12-year low of 2.8% in March 2024, with projections indicating a further decrease to 2.5% by the end of the current fiscal year. Improved asset quality was noted across public and foreign banks, largely attributed to active provisioning and reduced new NPA accretions.

The Reserve Bank of India's (RBI) latest Financial Stability Report (FSR) announced a significant achievement for the country's financial sector: commercial banks' gross non-performing assets (NPAs) hit a 12-year low of 2.8% in March 2024. The report, released on Thursday, projects the ratio could decline further to 2.5% by the end of the current fiscal year.

Sustained improvement in asset quality was observed across scheduled commercial banks (SCBs), with public sector banks (PSBs) and foreign banks (FBs) leading the way due to active provisioning strategies. The report highlighted that PSBs saw a substantial reduction of 76 basis points in their GNPA ratio during the second half of the 2023-24 period.

Furthermore, the half-yearly slippage ratio, which measures new NPAs as a share of standard advances, decreased across all bank groups. Meanwhile, the write-off ratio remained steady, reflecting a decline in overall GNPA stock. The FSR attributes the continuous fall in GNPA ratio since March 2020 to fewer new NPAs and increased write-offs, bolstered by stress tests assessing SCBs' resilience to economic shocks.

The report noted that deposit mobilization by SCBs gained momentum in 2023-24, mainly through term deposit accretions. Enhanced interest rates and efforts to match rising credit demand drove this trend. Additionally, credit growth in the personal loans sector, particularly housing loans, surged among public sector and foreign banks, though it slowed for private sector banks.

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