Indian banks’ bad assets improve to 10-year low: CareEdge

SCB’s recorded a 10-year low of 3.9% for its GNPA.

The gross non-performing assets (GNPA) ratio of India’s scheduled commercial banks (SCBs) reached a 10-year low of 3.9% in fiscal year ending 2023, CareEdge said in a report.

The improvement in asset quality can be attributed to factors such as recoveries, increased write-offs by banks, and a rise in advances. 

Furthermore, the occurrence of fresh non-performing assets (NPAs) has decreased across different bank groups in 2023, indicating a lower rate of new NPA additions.

However, it is noteworthy that the GNPA ratio for public sector banks (PSBs) remains significantly higher at 4.97% in 2023 compared to the GNPA ratio of private banks, which stands at 2.35%.

During the asset quality review (AQR) conducted in 2015-2016, banks experienced a significant increase in GNPAs from 3.8% in 2014 to 11.2% in 2018, along with a rise in net non-performing assets (NNPAs) from 2.1% to 5.6% during the same period. 

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This increase was mainly attributed to weaknesses in wholesale lending, which necessitated substantial provisioning and write-offs over the next few years. 

As a result, Indian bankers became more risk-averse, and there was a decline in credit demand from wholesale borrowers. The elevated provisions, coupled with the substantial rise in GNPAs due to the AQR process, caused a widening gap between GNPAs and NNPAs. 

Overall, the asset quality of the banking system has continued to improve, with a sequential decline in the GNPA ratio for both wholesale advances and retail loans.