RBI Reports Decadal High in Asset Quality for Indian Banks

Source- This post is based on the article “Asset quality of Indian banks improves to decadal high: RBI” published in “The Hindu” on 27th December 2023.

Why in the News?

As per the Reserve Bank of India’s (RBI) ‘Trend and Progress of Banking in India’ report, the Gross Non-Performing Assets (GNPA) ratio of Indian scheduled commercial banks (SCBs) consistently improved in the second quarter of FY24, reaching a decadal low.

What are the Key Findings of the RBI Report?

1) The asset quality, reflected in GNPA ratios, improved from 2018-19 to 2022-23.

2) The SCBs’ GNPA ratio dropped to 3.9% in March 2023 and further to 3.2% in September 2023, reaching a decade-low.

3) Approximately 45% of the decline in SCBs’ GNPAs during 2022-23 resulted from recoveries and upgradations.

4) In 2022-23, the consolidated balance sheet of SCBs (excluding Regional Rural Banks) saw a 12.2% growth, the highest in nine years.
– The primary factor behind this expansion on the asset side was bank credit, which experienced its fastest pace of growth in over a decade.

5) In 2022-23, non-banking financial companies (NBFCs) saw a 14.8% expansion in their consolidated balance sheet, driven by double-digit credit growth.

6) The RBI stressed that qualitative metrics like improved disclosures, robust code of conduct, and transparent governance structures contribute to financial stability.

What is Gross Non-Performing Assets (GNPA) ratio?

1) Gross Non-Performing Assets (GNPA) refer to the total value of non-performing loans (NPLs) or bad loans that a bank has on its books.
Note- Non performing loans refers to loans for which payments have not been made for a minimum period of 90 days.

2) The Gross NPA ratio is calculated by dividing the total value of GNPA by the total value of gross advances (loans) made by the bank, expressed as a percentage.

3) It is an important indicator of the asset quality of a bank and is closely monitored by regulators and investors to assess the financial health and risk profile of the banking sector.

4) A lower GNPA ratio is generally considered favorable, indicating healthier loan portfolios.

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