Banks’ asset quality to improve further: Economic Survey

The asset quality of Scheduled Commercial Banks (SCBs) has been improving steadily over the years across all major sectors.

Published: 31st January 2023 05:42 PM  |   Last Updated: 31st January 2023 05:42 PM   |  A+A-

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By Express News Service

MUMBAI: Indian banks are expected to see further improvement in their asset quality in the next financial year. The share of Non-Performing Assets (NPAs) in the total advances of the bank is likely to fall in the coming months, according to the Economic Survey.

"Going ahead, as per the baseline scenario of the RBI’s stress testing framework, the declining tendency in the GNPA ratio is likely to continue and is projected to drop further to 4.9 per cent in March 2023," noted the Economic Survey 2022-23.

The asset quality of Scheduled Commercial Banks (SCBs) has been improving steadily over the years across all major sectors. The GNPA (Gross Non-Performing Assets) ratio has decreased from 8.2 per cent in March 2020 to a seven-year low of 5 per cent in September 2022, while Net Non-Performing Assets (NNPA) have dropped to a ten-year low of 1.3 per cent of total assets.

"Lower slippages and the reduction in outstanding GNPAs through recoveries, upgrades and write-offs led to this decrease. Lower GNPAs, combined with high provisions accumulated in recent years, contributed to a decline in NNPA," noted the Economic Survey.

Along with banks, Non-Banking Financial Companies (NBFCs) have also witnessed a decline in bad loans. The continuous improvement in asset quality is seen in the declining GNPA ratio of NBFCs from the peak of 7.2 per cent recorded during the second wave of the pandemic (June 2021) to 5.9 per cent in September 2022, reaching close to the pre-pandemic level. "Although this softening was observed across sectors, the GNPA ratio of the services sector remains in double digits," said the survey.

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With shrinking GNPAs, the Provisioning Coverage Ratio (PCR) has been increasing steadily since March 2021 and reached 71.6 per cent in September 2022. The CRAR of SCBs has been rising sequentially in the post-asset quality review period.

"With a pickup in lending activity during the first half of FY23, CRAR moderated in September 2022 because of an increase in risk-weighted assets (RWAs). However, it remains well above the minimum capital requirement, including Capital Conservation Buffer (CCB) requirements of 11.5 per cent," said the Economic Survey.

"Macro-stress tests conducted by RBI for credit risk reveal that SCBs are well-capitalised and that all banks would be able to comply with the minimum capital requirements even under adverse stress scenarios," it added.

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