Gross NPA ratio of India's banks falls to 12-year low of 2.6%

The asset quality of India's banks has improved further with their gross non-performing assets (GNPA) declining to 2.6 per cent of total advances in September 2024 which is the lowest level in the last 12 years, according to the RBI's latest financial stability report.

The net NPA ratio was around 0.6 per cent, according to the RBI's December 2024 issue of the Financial Stability Report (FSR).

"Buoyed by falling slippages, higher write-offs and steady credit demand, the gross nonperforming assets (GNPA) ratio of 37 scheduled commercial banks (SCBs) fell to a multi-year low of 2.6 per cent," the report stated.

The improvement in asset quality of SCBs was broad-based across sectors and bank groups, according to the report.

According to the report, the share of large borrowers in the GNPA of banks has steadily declined over the past two years. The asset quality of banks' large borrower portfolios has improved considerably, with the GNPA ratio falling from 4.5 per cent in March 2023 to 2.4 per cent in September 2024.

In the large borrower segment, the share of standard assets in the total funded amount has consistently improved over the past two years.

"Within the large borrowers' cohort, the share of top 100 borrowers has decreased to 34.6 per cent in September 2024, reflecting a growing credit appetite among medium-sized borrowers," the report pointed out.

Notably, none of the top 100 borrowers are classified as NPAs in September 2024.

It further said profitability of SCBs improved during H1:2024-25, with profit after tax (PAT) surging by 22.2 per cent year-on-year.

Public sector banks (PSBs) and PVBs recorded PAT growth of 30.2 per cent and 20.2 per cent, respectively, while foreign banks (FBs) experienced single-digit growth (8.9 per cent).

The soundness of scheduled commercial banks (SCBs) has been bolstered by strong profitability, declining non-performing assets and adequate capital and liquidity buffers. Return on assets (RoA) and return on equity (RoE) are at decadal highs while the gross non-performing asset (GNPA) ratio has fallen to a multi-year low, the report states.

RBI said the banking stability indicator (BSI), which provides an assessment of the resilience of the domestic banking system, showed further improvement during the first half of 2024-25.

The resilience of the domestic banking system has been bolstered by robust capital buffers, strong earnings and sustained improvement in asset quality, the report said.