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Banks gross NPA drops to 7-year low at 5%, net NPA at a decade low: RBI’s FSR
- RBI said, buoyant demand for bank credit and early signs of a revival in the investment cycle are benefiting from improved asset quality, return to profitability, and strong capital and liquidity buffers of scheduled commercial banks (SCBs).
Banks' asset quality has shown significant improvement in the first half ending September 30, 2022 period for FY23. As per RBI's data, scheduled commercial banks' gross non-performing assets (GNPA) has dropped to a seven-year low, while net NPA has contracted to a decade low. Also, banks asset quality for the industrial sector improved, while there has been a massive decline in large borrowers' shares by end of September 2022.
In its financial stability report for December 2022 that was released on Thursday, RBI said, buoyant demand for bank credit and early signs of a revival in the investment cycle are benefiting from improved asset quality, return to profitability, and strong capital and liquidity buffers of scheduled commercial banks (SCBs).
As per the FSR, banks gross NPA continued to decline and stood at a seven-year low of 5% in September 2022. Meanwhile, the net NPA stood at a ten-year low of 1.3% under which private bankers' net NPA was below 1%.
Further, the report highlighted that the quarterly slippage ratio which was stubbornly rising since December 2021, cooled off in Q2 of FY23 with considerable improvement recorded by public sector banks.
Notably, the provision coverage ratio (PCR) of the banks has been steadily rising since March last year and reached 71.5% in September 2022 quarter. According to the data, the PCR of private banks and foreign banks exceeded 75%.
Meanwhile, the write-offs to GNPA ratio soared during the first half of FY23 on an annualised basis, after declining for two consecutive years.
In terms of sectoral asset quality, RBI's report pointed out that banks gross NPA improved across most sectors. Improvement in the GNPA ratio in respect of the industrial sector also continued, however, it continued to be on an elevated level for gems and jewellery and construction sub-sectors. On the other hand, asset quality in the personal loans segment bettered in H1FY23, especially for housing and vehicle loans.
Highlighting the credit quality of large borrowers, RBI's FSR revealed that the share of large borrowers in gross advances of SCBs has been on a declining path and their share in total GNPA has come down to 62.2% in September 2022 from 75.6% two years earlier. The Gross NPA ratio of large borrowers declined to 6.4% in September 2022 from 10% in March 2021.
Noteworthily, RBI mentioned that the share of the top 100 large borrowers in the total loan book of SCBs continued to rise and stood at 17.4% in September 2022, signaling fresh borrowing by large corporates. But the asset quality of the top 100 borrowers also improved considerably, as their share in SCBs’ GNPA declined from 6.8% in March 2022 to 5.4% in September 2022.
As for credit growth, the report revealed that banks' credit started picking up in H2 of FY22 and sustained its momentum, however, further gathered pace to touch a decadal high of 17.4% as on December 16, 2022 -- a level last observed during 2011.
On the upside in credit growth, RBI stated that the increase has been broad-based across geography, economic sectors, population groups, organizations, types of accounts, and bank groups. In terms of bank-wise performance, private banks continued to record much higher credit growth than state-owned banks.
In regards to aggregate deposits, banks witnessed some moderation -- registering a growth of 9.4% by end of December 16, 2022. RBI's report stated that current account and savings account (CASA) growth moderated whereas term deposits attracted accretions in response to rising interest rates.
RBI said, the Indian financial sector has remained resilient building on the consolidation of the banking sector’s balance
sheet, the ongoing reduction in bad loans, and the buffering of risk-absorbing capacity. Macro stress tests indicate that all banks would meet the regulatory minimum capital requirements even in a severe stress scenario. Stress tests indicate that some non-banking financial companies may be vulnerable to liquidity shocks. Contagion risks and consequent additional solvency losses remain limited.
In its concluding remark, while giving an outlook, RBI's report said, "keeping pace with the underlying momentum of domestic economic activity, financial sector entities have engaged in active intermediation to support the demand for funds. Lending has moved to a higher trajectory and has become broad-based. Capital positions remain strong."
Further, RBI's report added, "the asset quality of banks and NBFCs has improved further, but some deterioration is evident for UCBs. Macro stress tests indicate that SCBs can withstand moderate to severe adverse macroeconomic circumstances without significant capital impairment."
In the case of macroeconomic shocks, RBI's report said, there are no additional solvency losses to the banking system due to contagion.
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First Published:29 Dec 2022, 07:00 PM IST
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