Gross Non-Performing Assets (GNPAs) of Scheduled Commercial Banks (SCBs) reduced by 21.1% yoy to Rs. 4.85 lakh crore by December 31, 2023, on account of lower slippages, steady recoveries and upgrades, and some write-offs. Meanwhile, advances grew by 20.3% indeed in the same period. The GNPA ratio of SCBs has reduced to 3.0% as on December 31, 2023, from 4.6% over a year ago, according to a CareEdge report.
SCBs’ GNPA ratio crossed the pre-asset quality review (AQR) levels in Q3FY24.
This trend is expected to be maintained in FY24 due to several factors, including healthy growth in advances driven by an increase in economic activities, lower incremental slippages and reduction in restructured portfolios. Therefore, the SCB GNPA ratio could improve to 2.80%-2.90% by FY24 end. NNPA ratio is at a record low at 0.8% on December 31, 2023, and is likely to trend even lower in the next few quarters as PSBs continue to roll.
report improved asset quality figures. Additional SCBs also maintain a large buffer for provisions, which also creates a somewhat benign credit cost environment. Due to the sharp growth trends and recent RBI notification, the performance of unsecured loans and other newly originated personal loans remains a key to monitor.
Downside risks include an increase in crude oil prices, a global economic slowdown, global monetary and liquidity stress, and elevated interest rates.
Health parameters
Net Non-Performing Assets (NNPAs) of SCBs reduced by 28.1% yoy to Rs 1.09 lakh crore as of December 31, 2023. The NNPA ratio of SCBs reduced to 0.7% from 1.2% in Q3FY23 which is an all-time low.
Restructured assets for selected 10 PSBs reduced by 16.6% indeed to Rs. 0.97 lakh crore by December 31, 2023. Meanwhile, restructured assets of selected five Private Banks (PVBs) declined by 37.6% to Rs. 0.11 lakh crore due to repayments made by the borrowers, increase in the economic activities and sliding of some accounts into the NPAs. Restructured assets (Ten PSBs + Five PVBs) as a percentage of net advances stood at 0.8% on December 31, 2023, down about 50 bps over a year ago.
The Provisional Coverage Ratio (PCR) of SCBs expanded by 289 bps yoy to 77.4% Q3FY24 mainly due to improvement in overall asset quality.
SCB’s cost of credit (annualized) declined by 35 basis points (bps) yoy to 0.38% in Q3FY24. In addition, it generally trended down by 0.87% in Q3FY22. Public Sector Banks (PSBs) have held large buffers for provisions for the last 6-8 quarters along with continuous improvement in asset quality has required a lower level of incremental provision, resulting in lower cost of credit.
As on March 31, 2018, the NNPA ratio stood at 6% in FY18 which fell to 0.7% in December 31, 2023. It was attributed to overall improvement in asset quality due to healthy recoveries, lower slippage , demises, creating provisions and more resolution and settlement with IBC 2016.