New Delhi [India], September 26 : Net Non-Performing Assets (NNPAs) of scheduled commercial banks (SCB) saw a sharp decline, reducing by 24.9 per cent y-o-y to Rs 1 lakh crore as of June 30, 2024, according to CareEdge Ratings.
The gross non-performing assets (GNPAs) of scheduled commercial banks (SCBs) fell by 15.2 per cent year-on-year (y-o-y) to Rs 4.57 lakh crore as of Q1FY25, compared to Rs 5.66 lakh crore in the same period last year.
The GNPA ratio now stands at 2.8 per cent, a reduction from 3.8 per cent a year ago. This drop is primarily due to lower slippages, higher recoveries, and steady write-offs over the last year.
The Indian banking sector has continued its positive trajectory with reductions in both gross and net non-performing assets NPAs for SCBs as of June 30, 2024.
The NNPA ratio has reached an all-time low of 0.6 per cent, down from 1.0 per cent in Q1FY24.
Despite this, the decline in NNPAs within SCBs varied, as private banks (PVBs) witnessed a marginal increase of 3 basis points (bps) in their NNPA ratio, driven by seasonal collection weaknesses and higher retail delinquencies, leading to a current NNPA ratio of 0.46 per cent.
Private sector banks (PSB), in particular, have managed to bring down their incremental provisioning levels due to consistent asset quality improvements. They have contributed to the overall improvement in the banking sector's asset quality.
The proposed provisioning norms for projects under construction by the Reserve Bank of India (RBI) could impact SCBs' credit costs in the coming years, with public banks expected to see a 0.2 per cent increase in credit costs between FY25 and FY27.
Additionally, private banks could face a 0.1 per cent increase during the same period.
Moreover, downside risks to this positive trend include elevated crude oil prices, a potential global economic slowdown, and tightening global monetary policies. These factors could influence asset quality and profitability in the coming quarters.
The Indian banking sector's asset quality has reached pre-asset quality review (AQR) levels. The GNPA ratio of SCBs at 2.8 per cent and the NNPA ratio at 0.6 per cent reflect a sustained improvement.
Credit offtake, which grew by 18.1 per cent y-o-y in Q1FY25, is expected to remain strong, supported by economic expansion, capital expenditure increases, and government schemes like the Production Linked Incentive (PLI) initiative.
While the outlook for SCBs remains positive, external economic factors and RBI's proposed provisioning changes may influence the trajectory of asset quality in the coming quarters.
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