The Gross Non-Performing Assets (GNPA) ratio of Indian scheduled business banks (SCBs) went on enhancing within the second quarter of this monetary 12 months, dropping to a recent decadal low, in accordance to the Reserve Bank of India’s (RBI’s) report titled ‘Trend and Progress of Banking in India’.
“The improvement in asset quality, measured by GNPA ratios, that began in 2018-19 continued during 2022-23. The GNPA ratio of SCBs fell to a decadal low of 3.9% at end-March 2023 and further to 3.2% at end-September 2023,” the RBI mentioned within the report which was launched on Wednesday.
During 2022-23, about 45% of discount in GNPAs of SCBs was contributed by recoveries and upgradations, it added.
As per the report, the consolidated steadiness sheet of SCBs (excluding Regional Rural Banks) grew by 12.2% in 2022-23, the very best in 9 years. “The main driver of this growth on the asset side was bank credit, which recorded its fastest pace of expansion in more than a decade,” the central financial institution mentioned.
It mentioned throughout 2022-23, the mixed steadiness sheets of business banks expanded in double digits, pushed by sustained credit score progress. Higher lending charges and decrease provisioning necessities helped enhance the profitability of banks and shored up their capital positions, it added.
The capital to danger weighted property ratio (CRAR) of SCBs was 16.8% at end-September 2023, with all financial institution teams assembly the regulatory minimal requirement and the widespread fairness tier 1 (CET1) ratio requirement.
The mixed steadiness sheet of city co-operative banks (UCBs) expanded by 2.3% in 2022-23, pushed by loans and advances. Their capital buffers and profitability improved by means of 2022-23 and Q1:2023-24, the RBI mentioned.
According to the report the consolidated steadiness sheet of non-banking monetary corporations (NBFCs) expanded by 14.8% in 2022-23, led by double digit credit score progress.
“Profitability and asset quality of the sector also improved in 2022-23 and in H1:2023-24, even as the sector remained well-capitalised with Capital to Risk (Weighted) Asset Ratio (CRAR) higher than the regulatory requirement,” it mentioned.
Looking forward in 2024, the RBI mentioned in this surroundings, banks should guard towards credit score losses though increased capital buffers and provision protection ratio (PCR) present cushions.
“In addition to regulatory capital and liquidity requirements, qualitative metrics such as enhanced disclosures, strong code of conduct and clear governance structures would contribute towards financial stability,” it emphasised.
Stating that the worldwide surroundings remained extremely unsure, it mentioned the Indian banking system was effectively positioned to enhance additional, with higher asset quality, excessive capital adequacy and sturdy profitability.
“Financial stability is being underpinned by corporates’ stronger financials and deleveraging of their balance sheets,” it added.
Highlighting that within the current interval, the speed of progress of the unsecured retail section had outpaced whole financial institution credit score progress, the central financial institution mentioned the asset quality of the unsecured retail loans had not proven any deterioration thus far.
“The calibrated and targeted macroprudential measures announced in November 2023 in respect of select categories of consumer credit loans and bank lending to NBFCs are pre-emptive in nature and in the interest of financial stability,” it mentioned.
Looking forward, given the growing interconnectedness between banks and NBFCs, the RBI mentioned NBFCs ought to concentrate on broadbasing their funding sources and scale back overdependence on financial institution funding.
“Banks and nonbanks both, need to bring in greater empathy in their customer services,” it mentioned.
Drawing the eye of all stakeholders to shield the banking system and the funds system from the dangers of fraud and information breaches emanating from cyber threats, the central financial institution mentioned total, the banks and NBFCs should additional strengthen their steadiness sheets by means of sturdy governance and danger administration practices to meet the rising aspirations of the Indian financial system.
Phenomenal resilience displayed by banking sector: Khara
Meanwhile, Dinesh Khara, Chairman, State Bank of India (SBI) whereas talking on the tenth version of the SBI Banking & Economic Conclave 2023 in Mumbai mentioned during the last one 12 months, the financial system had moved from power to power and the banking sector had displayed phenomenal resilience.
“Banks delivered very good performance in FY23 as also in first half of FY24, strengthening capital and other key ratios, gearing up to attain scale to finance multiple large value projects/capex and ambitious transition to clean/green energy and mobility, while also building huge digital capabilities and forward-looking risk metrics to efficiently serve a large consumption centric young population,” he mentioned.
“The ‘twin balance sheet advantage, seems truly the new normal for underpinning the holistic economic growth that permeates horizons not seen before,” he added.
Emphasising that uncertainties continued to mar global economic and geopolitical landscape, he said India had weathered these headwinds and emerged resilient and was all set to regain the lost ground.
“The Indian economy has continued exhibiting robust resilience during the current year too, building upon the momentum initiated during 2022-23, notwithstanding the global turmoil as escalating multiple footprints of geopolitical tensions threaten to change the terms of trade, clocking growth rate of 7.7% in H1’ FY23-24, the very best amongst main economies on the planet,” he mentioned
In the backdrop of failure of massive banking establishments globally this 12 months, “the relative calmness here signals an unparalleled maturity of ecosystem that seems a harbinger of good times ahead,” he added.
