MUMBAI: The financial position of the banks has stayed robust, marked by the sustained expansion in assets and also liabilities/deposits, while their continuing focus on cleaning up their books has led to the gross bad loan ratios dropping to 13-year lows, a central bank report released on Thursday said.
In the latest ‘report on trends and progress of banking’ which shares data up to the September quarter and for the fiscal 2024, and released Thursday, the central bank said, system wide gross non-performing assets ratio (NPA) of banks slipped to an over-13-year low of 2.5% as of September from 2.7% as of March 2024. Similarly, net bad loans fell to 0.57% of total loans during the period under review from 0.62% as of March 2024, driven by stronger loan-loss buffers.
It attributes the strong balance sheets to robust credit growth during 2023-24. Banks capital to risk weighted assets ratio was 16.8% as of September, with all bank groups meeting the regulatory minimum requirement and the common equity tier 1 ratio requirement.
On the profitability side, the report said it rose for the sixth consecutive year in fiscal 2024 and continued to rise in the first half of fiscal 2025 with the return on assets at 1.4% and return on equity at 14.6 percent. On the improvement in asset quality, as measured by their GNPA ratios, commenced in 2018-19. GNPAs came down by 15.9% year-on-year to `4.8 trillion as of March 2024 and the GNPA ratio declined to 2.7%, the lowest in 13 years, from 3.9% in March 2023. During 2023-24, nearly 44.4% of the reduction in GNPAs was attributable to better recoveries and upgrades.
The net NPA (NNPA) ratio fell to a decadal low of 0.62% at end-March 2024, driven by stronger provision buffers. As of September 2024, the NNPA ratio improved to 0.57%. The slippage ratio, which measures new accretions to NPAs as a share of standard advances at the beginning of the year, improved during 2023-24. For the third consecutive year, the slippage ratio of private banks remained higher than public banks on account of the former’s larger fresh accretion to NPAs.
The combined balance sheet of urban co-operative banks expanded in 2023-24, with asset quality improving for the third consecutive year while capital buffers and profitability were strengthened. Banks have cleaned up their balance sheets in recent years by selling bad loans to asset reconstruction companies or by writing them off to the tune of `10 trillion in past five years and `12 trillion since the Modi government assumed office in May 2014.