Market expert Porinju Veliyath expressed commendation for the Reserve Bank of India (RBI) after the central bank announced a significant improvement in the asset quality of banks during the first half of FY24. Taking to X (formerly Twitter), Veliyath praised RBI Governor Shaktikanta Das for the extraordinary achievement, highlighting the decade-long efforts of discipline, reforms, and prudence that led to cleaning up the inherited financial mess.
In its recently released Financial Stability Report (FSR) on December 28, the RBI reported that gross non-performing assets (GNPAs) of scheduled commercial banks reached a seven-year low, while net NPAs contracted to a decade low. The report also highlighted the improvement in banks’ asset quality for the industrial sector and a substantial decline in the shares of large borrowers by the end of September 2023.
As per the FSR, gross NPAs of banks stood at a seven-year low of 3.2% in September 2023, and net NPAs reached a ten-year low of 1.3%, with private bankers’ net NPAs at 0.8%. The report acknowledged the resilience of the non-banking financial companies (NBFCs) sector, showcasing improvements in capital adequacy ratio, GNPA ratio, and return on assets (RoA) in September 2023.
The RBI noted the buoyant demand for bank credit and early signs of a revival in the investment cycle, attributing these positive trends to improved asset quality, return to profitability, and robust capital and liquidity buffers of scheduled commercial banks (SCBs).
Macro stress tests projected that SCBs would comply with minimum capital requirements, with the system-level capital-to-risk-weighted-assets ratio (CRAR) in September 2024 projected at 14.8%, 13.5%, and 12.2% under baseline, medium, and severe stress scenarios. The report also highlighted the cooling off of the quarterly slippage ratio and the steady rise in the provision coverage ratio (PCR), reaching 71.5% in the September quarter.
While acknowledging the resilience of the Indian financial sector, the RBI emphasized the consolidation of the banking sector’s balance sheet, ongoing reduction in bad loans, and the strengthening of risk-absorbing capacity. Macro stress tests indicated that all banks would meet regulatory minimum capital requirements even in severe stress scenarios, with limited contagion risks and solvency losses for non-banking financial companies.