Indian Banks Expected To Achieve 2.1 Per Cent Gross NPAs By FY25: Report

Bank NPAs: Care Ratings' report confirmed that bank GNPAs are anticipated to dip further to 2.1-2.4 per cent by the end of FY25

The RBI launched a comprehensive exercise in the mid-2010s, directing banks to classify certain stressed assets as NPAs to ensure accurate balance sheet representation.

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The gross non-performing assets (GNPA) of the Indian banks are projected to see further improvement, potentially reaching up to 2.1 per cent by the end of the fiscal year 2025, as per a report on Friday. According to a report by PTI, Care Ratings, a domestic ratings agency, said GNPAs of the banks are expected to range between 2.5 per cent and 2.7 per cent in FY24 and are anticipated to dip further to 2.1-2.4 per cent by the end of FY25. 

The Reserve Bank of India (RBI) launched a comprehensive exercise in the mid-2010s, directing banks to classify certain stressed assets as non-performing assets (NPAs) to ensure accurate balance sheet representation.

The ratings agency also identified several potential downside risks that could cause its estimate to fail, including a material deterioration in asset quality as a result of rising interest rates, the impact of regulatory changes, a tighter liquidity environment, and global issues. It said that a surge in GNPAs of 11.2 per cent in FY18 from 3.8 per cent in FY14 was due to the AQR process of 2015-16, resulting in pushing banks to recognise NPAs and dampen unnecessary restructuring. The stress primarily originated from exposure to big-ticket wholesale advances.

Since FY19, GNPAs have been on a downward trend, reaching a 10-year low of 3.9 per cent in FY23 and standing at 3 per cent in the December quarter of FY24. The report attributes the improvement in asset quality to recoveries, increased write-offs by banks, and significantly lower slippages. Additionally, offloading NPAs to asset reconstruction companies has contributed to this positive trend.

GNPA Ratio In Other Sectors

From a sectoral perspective, the GNPA ratio in the agriculture sector decreased to 7 per cent in September 2023 compared to 10.1 per cent in March 2020. In the industrial sector, the GNPA ratio dropped to 4.2 per cent in September 2023 from 14.1 per cent in March 2020 and 22.8 per cent in March 2018, mainly due to corporate deleveraging, resolutions, and write-offs. However, GNPA levels remain high in the gems and jewellery and construction sub-sectors.

Regarding retail loans, the GNPA was reported at 1.3 per cent in September 2023 compared to 2 per cent in March 2020. The agency noted that much of the stress in this segment is attributed to unsecured loans, credit card receivables, and education loans. "The performance of unsecured personal loans and restructured accounts continues to be monitorable," the agency said.