MUMBAI: The consolidated balance sheet of scheduled commercial banks (SCBs) has registered double-digit growth in 2021-22, after a gap of seven years while gross non-performing assets (GNPA) have declined to reach 5%, revealed a report released by the Reserve Bank of India (RBI) on Tuesday.
“From its peak in 2017-18, the GNPA ratio of SCBs has been declining sequentially to reach 5% in end-September 2022. This decrease was led by lower slippages as well as a reduction in outstanding GNPAs through recoveries, upgradations and write-offs,” noted the ‘Trends and Progress of Banking in India’ report for FY22.
According to the report, the GNPA has declined to 5.8%. In 2021-22, the reduction in NPAs was mainly contributed by written-off loans in the case of PSBs, while the upgradation of loans was the primary driver for asset quality improvement for private banks. RBI asked banks to monitor slippages in restructured assets closely.
“Going forward, it is imperative that banks ensure due diligence and robust credit appraisal to limit credit risk. The uncertainties characterising the fast-changing macroeconomic scenarios amid formidable global headwinds during 2022-23 can pose new challenges to the banking sector. If downside risks materialise, asset quality could be affected,” said the report.
Despite some recent moderation, public sector banks still have the lion’s share in the consolidated balance sheet. At end of March 2022, they accounted for 62 per cent of total outstanding deposits and 58% of total loans and advances extended by SCBs. Credit growth accelerated to a ten year high in end-September 2022, led by private banks. “Both working capital and term loans, which were decelerating since Q4 2018-19, showed steady growth during 2021-22.Nearly 75%of incremental credit during the year was in the form of term lending, which grew at a 10-quarter high pace,” noted the report.
The reliance on large borrowers for loans seems to be going down with the increase in the retail business, and accounts of over Rs 5 crore accounted for 47.8% of the outstanding credit in FY22 as against 48.4% in FY21. However, such accounts’ contribution to overall dud assets improved more substantially to 63.4% of the overall NPAs in FY22 as against 66.4% in FY21.
An acceleration in income and contraction in expenditure boosted the profitability of SCBs in 2021-22, measured in terms of return on equity and return on assets, the RBI said. Amid concerns over the high haircuts in bankruptcy resolutions, the RBI reiterated its pitch for the resolution value to be compared with the liquidation value of stressed assets.