Banking system resilient, bad loans fall to decade low of 3.9%: RBI report

Expects NPAs in the banking system to decline further from 3.9% to 3.6% by March 2024.
Reserve Bank of India (RBI) Governor Shaktikanta Das. (PTI Photo)
Reserve Bank of India (RBI) Governor Shaktikanta Das. (PTI Photo)

MUMBAI: Indian economy remains resilient on the back of a healthy banking system, which has been fortified by multi-year low levels of non-performing assets (NPAs) and adequate capital, according to the Reserve Bank’s Financial Stability Report released on Wednesday.

The gross NPA ratio of banks declined to a decade low of 3.9% in March 2023 from 11.5% in March 2018. The net NPA ratio declined to 1% in March 2023 from 6.1% in March 2018.

Macro stress tests for credit risk reveal that SCBs (scheduled commercial banks) are well capitalised and all banks would be able to comply with the minimum capital requirements even under adverse stress scenarios.

The system-level capital to risk-weighted assets ratio (CRAR) in March 2024, under baseline, medium and severe stress scenarios, is projected at 16.1%, 14.7% and 13.3%, respectively,” said the bi-annual report. The GNPA ratio could improve to 3.6% by March 2024 from 3.9% in March 2023, provided macroeconomic conditions don’t deteriorate.

In a foreword of the report, RBI Governor Shaktikanta Das said the Indian economy has made a solid recovery and is among the fastest-growing large economies despite heightened uncertainties and formidable headwinds. Financial stability is non-negotiable, and all stakeholders in the financial system must work to preserve this, he added.

The provisioning coverage ratio (PCR), which was as low as 40.1% in June 2016, has improved to 74% in March 2023. The report said banking system profitability improved with return on assets (ROA) rising to 1.1% in 2023 from a low of - 0.2% in 2018. “Healthier balance sheets are catalysing sustained and broad-based pick-up in momentum of credit growth, with credit flow improving to all sectors of the economy,” the RBI said.

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