Banks’ gross NPA ratio moderates to 12-year low of 2.8% in March 2024: RBI report
- Gross non-performing assets (GNPA) ratio of scheduled commercial banks moderated to a 12-year low.
Highlights:
- The gross non-performing assets (GNPA) ratio of scheduled commercial banks, moderated to 2.8 per cent in March 2024 the RBI said in its Financial Stability Report (FSR)
- The estimate for GNPA ratio for March 2025 is based on the macro stress tests, performed to assess the resilience of banks’ balance sheets to unforeseen shocks emanating from the macroeconomic environment.
- Under the baseline stress scenario, the GNPA ratio of all banks may improve to 2.5 per cent by March 2025.
- If the macroeconomic environment worsens to a severe stress scenario, the GNPA ratio may rise to 3.4 per cent, the RBI’s half yearly report said.
- In the severe stress scenario, the GNPA ratios of public sector banks (PSBs) may increase from 3.7 per cent in March 2024 to 4.1 per cent in March 2025
- Stress tests are conducted covering credit risk, interest rate risk and liquidity risk and the resilience of commercial banks in response to these shocks is studied.
- Using the stress tests, the RBI projects impairment or bad loans and capital ratios over a one-year horizon under a baseline and two adverse scenarios – medium and severe.
- The half-yearly slippage ratio (new NPA accretions as a share of standard advances) decreased across bank groups.
- Though the amount of write-offs declined during the year, the write-off ratio remained almost at the same level as a year ago, due to reduction in GNPA stock
- Overall, the sustained reduction in the GNPA ratio since March 2020 has been primarily due to a persistent fall in new NPA accretions and increased write-offs.
Prelims Takeaway
- NPA
- Financial Stability Report (FSR)