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Reserve Bank of India’s (RBI) bi-annual Financial Stability Report has said that the Indian banking system's asset quality strengthened to a decadal best, with the gross non-performing assets (GNPAs) ratio falling to 3.9 per cent as of March 2023. It said

Reserve Bank of India’s (RBI) bi-annual Financial Stability Report has said that the Indian banking system's asset quality strengthened to a decadal best, with the gross non-performing assets (GNPAs) ratio falling to 3.9 per cent as of March 2023. It said GNPAs of the scheduled commercial banks (SCBs) are expected to improve further to 3.6 per cent by March 2024, as per the baseline scenario.

It can be noted that the banking system NPAs peaked in the second half of the last decade after the RBI launched an asset quality review and forced banks to recognize hidden stress to ensure that books represent the true picture. The report said the net NPAs of the banking system improved to 1 per cent, a level that was last seen way back in July 2011. The quarterly slippage ratio - which is the share of standard advances slipping into NPAs - moderated further to 0.3 per cent, but there was a jump in the write-offs to GNPAs ratio to 28.5 per cent at the end of FY23 on the back of more classification by private banks lately.

According to the report, the capital to risk-weighted assets ratio (CRAR) and the common equity tier 1 (CET1) ratio of SCBs rose to historical highs of 17.1 per cent and 13.9 per cent, respectively, in March 2023. Macro stress tests for credit risk have revealed that all banks would comply with the minimum capital requirements even under a severe stress scenario. It said the increased focus on retail lending by banks has resulted in the share of corporate loans - the mainstay in banks' loan books - falling to 46.4 per cent in March 2023 against 51.1 per cent in March 2020. 

It also noted that the share of large loans in the overall GNPAs has also come down to 53.9 per cent in March 2023 from 75.7 per cent three years ago. GNPAs for large borrower loans of over Rs 5 crore improved to 4.5 per cent from 12.2 per cent three years ago, while the asset quality of top 100 borrowers also improved, with their share in SCBs' GNPA declining to 1.6 per cent in March 2023 from 6.8 per cent as of March 2022.

of the scheduled commercial banks (SCBs) are expected to improve further to 3.6 per cent by March 2024, as per the baseline scenario.

It can be noted that the banking system NPAs peaked in the second half of the last decade after the RBI launched an asset quality review and forced banks to recognize hidden stress to ensure that books represent the true picture. The report said the net NPAs of the banking system improved to 1 per cent, a level that was last seen way back in July 2011. The quarterly slippage ratio - which is the share of standard advances slipping into NPAs - moderated further to 0.3 per cent, but there was a jump in the write-offs to GNPAs ratio to 28.5 per cent at the end of FY23 on the back of more classification by private banks lately.

According to the report, the capital to risk-weighted assets ratio (CRAR) and the common equity tier 1 (CET1) ratio of SCBs rose to historical highs of 17.1 per cent and 13.9 per cent, respectively, in March 2023. Macro stress tests for credit risk have revealed that all banks would comply with the minimum capital requirements even under a severe stress scenario. It said the increased focus on retail lending by banks has resulted in the share of corporate loans - the mainstay in banks' loan books - falling to 46.4 per cent in March 2023 against 51.1 per cent in March 2020. 

It also noted that the share of large loans in the overall GNPAs has also come down to 53.9 per cent in March 2023 from 75.7 per cent three years ago. GNPAs for large borrower loans of over Rs 5 crore improved to 4.5 per cent from 12.2 per cent three years ago, while the asset quality of top 100 borrowers also improved, with their share in SCBs' GNPA declining to 1.6 per cent in March 2023 from 6.8 per cent as of March 2022.