Banking on Financial Stability: India's GNPA Drops to 12-Year Low

The Reserve Bank of India's report highlights a significant improvement in the asset quality of banks, with the gross non-performing assets ratio dropping to a 12-year low. Despite concerns over increasing write-offs, profitability and resilience in the banking sector have shown marked progress due to steady credit demand and improved standards.

The Reserve Bank of India announced on Monday that asset quality in the country's banking sector has significantly improved, with gross non-performing assets (GNPA) declining to a 12-year low of 2.6% as of September 2024. This improvement is attributed to falling slippages and steady credit demand.

Despite the positive trends, the RBI raised concerns about a sharp increase in loan write-offs, particularly among private sector banks. This could be concealing worsening asset quality in unsecured lending areas and signal lowered underwriting standards.

The Financial Stability Report published in December 2024 outlines that while asset quality improvements are broad-based, challenges remain, particularly with unsecured loans. The banking system's profitability has increased alongside improvements in asset quality, yet the liquidity coverage ratio has diminished slightly over the year.

(With inputs from agencies.)