MUMBAI: With banks continue to clean up their balance-sheets, both gross as well as net NPAs have come down to the lowest levels on record at 1.9% and 0.4% respectively in the December quarter. This comes on the back of steady improvement in key pain areas, with retail loan delinquencies falling to 2.3% of their total exposure, corporate defaults slipping to a low of 0.8% and agri loan NPAs dipping to 6.2%.
Gross non-performing assets (GNPAs) of banks improved to 1.9% in Q3 down 12.3% on-year to Rs 3.87 trillion, led by a 16.2% reduction in state-run banks, while net NPAs too improved to 0.4%, falling 11.2% on-year to Rs 0.86 trillion (Rs 0.36 trillion from private sector banks). This was supported by steady recoveries, upgrades, lower slippages and continued sale of stressed assets to ARCs which touched nearly Rs 70,000 crore in the reporting quarter, Care Ratings senior director Sanjay Agarwal and his deputy Saurabh Bhalerao said in a note Wednesday.
For a perspective, net NPAs were close to 7% in the March 2018 quarter when GNPAs were in high double digits of 3-14%. Both the numbers are the lowest since fiscal 2000 and would have been far better had it not been for the poor show by private sector banks.
Since the first quarter of this fiscal, NPAs have been steadily falling. Though agri books remain the biggest pain area for banks, they have also been improving steadily from 7.5% in Q1FY26 to 6.7% in Q2 to 6.2% in Q3. Similarly another large pain point is the retail book which had 2.7% of all its loans as NPAs in Q1 but declined to 2.4% in Q2 and further to 2.2 in Q3. Similarly, the corporate NPAs has the best declining rate—from 1.7% in Q1 to 1% in Q2 and further down to 0.8% in Q3, according to their analysis of the banks' Q3 balance-sheets.
This is despite aggregate provisions rising marginally to 14.9% and annualised credit cost increasing marginally to 0.37% from 0.36% due to higher provisioning by select banks.
Another reason for the record low NPAs is the continuing fall in the restructured assets which declined further to 0.37% of net advances in Q3, down around 15 bps from the previous quarter.
Private sector banks reported a 4.1% rise in credit costs, largely driven by additional standard asset provisioning by HDFC Bank and ICICI Bank for their agri books following the RBI’s supervisory review. In comparison, public sector banks saw a 29.4% increase, driven by higher prudential and standard asset provisioning by a large bank, along with a relatively lower base in the corresponding quarter last year.
Restructured assets declined further to 0.37% of net advances down around 15 bps from the previous quarter.
Fresh slippages remained broadly contained, inching up 1% on-year due to higher MSME stress at one large state-run bank, even as private sector ones’ slippages declined.
Meanwhile, recoveries and write-offs moderated 24.6% reflecting normalisation as the legacy stressed-asset pool continues to shrink, supported by calibrated write-offs, live NPA accounts, and a prudent shift toward relatively lower-risk retail exposures such as mortgages.
Stress in unsecured personal loans and microfinance portfolios persists for a few banks but is mitigated by corporate deleveraging and the continued rundown of legacy NPAs. Credit costs appear to have peaked, with state-run banks reflecting bank-specific provisioning and private banks benefiting from stable recoveries and upgrades.
Going forward, both asset quality and credit growth are expected to remain stable. However, evolving risks in unsecured retail portfolios, global macro uncertainties and potential regulatory changes will require continued caution.