Gross NPA ratio of Banks fall below 3%, first time since 2012

The asset quality of commercial banks kept declining, as their gross non-performing asset (GNPA) ratio dropped to 2.8% in March 2024, the lowest in 12 years, down from 3.2% in September 2023. 

The biannual Financial Stability Report of the Reserve Bank of India (RBI) indicated that the Net NPA ratio declined to 0.6 per cent from 0.9 per cent in the same period.

The report stated that, according to stress test predictions, the GNPA ratio of all scheduled commercial banks could potentially reach a 2.5 per cent improvement by March 2025 and that all banks would be able to meet the minimum capital requirement set by regulations in macro stress tests for credit risk even in a severe stress scenario.

The Indian banking industry saw consistent enhancements in capital levels, asset quality and profitability during a period of significant business growth. 

It was observed that public sector banks (PSBs) saw a significant decrease of 76 basis points in their GNPA ratio during the latter part of FY24.

While the overall improvement in banks' asset quality was widespread, agriculture continued to have the highest impairment ratio, despite showing consistent improvement in the second- half of the 2023-24.

The stress test findings indicated that in the event of a severe economic downturn, the GNPA ratio could potentially increase to 3.4 per cent. 

During times of high pressure, PSBs may see their GNPA ratios rise from 3.7 percent in March 2024 to 4.1 percent in March 2025.

While private banks could experience an increase from 1.8 percent to 2.8 percent; and foreign banks might go up from 1.2 percent to 1.3 percent.