MUMBAI: Loan write-offs were a major reason for the massive reduction in non-performing assets (NPAs) ratio over the past five years, which has hit a multi-decadal low of 2.3 per cent in the just concluded fiscal, shows the data from the Reserve Bank.
The asset quality of commercial banks improved massively with gross NPAs and net NPAs declining to multi-decadal lows of 2.3 per cent and 0.5 per cent, respectively in FY25, the regulator said in its biannual Financial Stability Report released last evening.
But the report noted that gross NPAs for non-banking lenders are at a high 5.8 per cent for the latest reporting period.
Attributing the record low bad loan pile to write-offs, FSR said, “write-offs to gross NPA ratios for commercial banks moved up marginally to 31.8 in FY25 from 29.5 in the previous year, led by private banks and foreign banks, while write-offs by public-sector banks saw a marginal decline. Disaggregation of NPA movements reveals that write-offs are a major component of NPA reduction over the past five years.”
Write-offs by private lenders stood at 81.9 per cent in FY25, while those by public sector peers accounted for 10.9 per cent in the unsecured retail loan segment, indicating that slippages in unsecured retail loans remained elevated for private sector banks, with fresh slippages in this segment continuing to dominate overall slippages in retail loans.
“Private sector banks’ contribution in write-offs is significantly higher among bank groups. Alongside, write-offs continue to remain a key contributing factor to NPA reduction in the unsecured retail portfolio, especially among private sector banks,” the RBI said.
The share of private banks in fresh slippages was 78.9 per cent in the second half of FY25, compared to 11.3 per cent for state-run banks and 6.4 per cent for small finance banks, the FSR said without offering the absolute numbers of the actually written off loans.
Even as unsecured retail lending has moderated, accounting for 25 per cent of retail loans and 8.3 per cent of gross advances, its asset quality has relatively weakened compared to the overall retail portfolio, with a gross NPAs 1.8 per cent versus 1.2 per cent in March 2025, especially in the case of private sector banks.