MUMBAI: The Reserve Bank of India (RBI) has warned private sector banks against writing off loans to make their books look good. This practice might be masking delinquencies in the unsecured lending segment and hiding the real asset quality picture, RBI said in its Financial Stability Report (FSR), released on Monday.
The banking regulator’s concern comes in the backdrop of data showing improvement in GNPA ratios, which fell to a decadal low in 2024-25. At the system level, GNPAs fell to a 13-year low of 2.6% in the September 2024 quarter. On the other hand, net NPAs plunged to 0.56% during this period.
“Buoyed by falling slippages, higher write-offs and steady credit demand, the gross nonperforming assets (GNPA) ratio of 37 banks fell to a multi-year low of 2.6 per cent,” the report noted. RBI has also flagged concerns over dilution in underwriting standards.
According to the latest FSR report, which is a half-yearly publication put out by the RBI, the net NPA ratio—the proportion of net non-performing assets in net loans—was at 0.6%.
Notably, the report says fresh accretion of NPAs in the retail loan portfolios was dominated by slippages in the unsecured loan book, at 51.9% as of September 2024.
The report also notes that the banking system’s liquidity coverage ratio declined from 135.7% in September 2023 to 128.5% 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.
Meanwhile, the share of large borrowers in GNPA has steadily declined over the past two years. And, the asset quality of large borrower portfolios improved considerably, it says.