Banks See Bad Assets Improve To Multi-Year Low Of 0.8% In September: RBI

The regulator issued its Financial Stability Report (FSR) and noted that the country’s financial system at the domestic level remained resilient as banks saw an improvement in their net NPA ratios. 

The report is reflective of the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) regarding risks to financial stability and the sturdiness of the Indian financial system.  ( Image Source :Getty )

The Reserve Bank of India on Thursday said that the net non-performing assets ratio of banks reduced to a multi-year low of 0.8 per cent as of September end 2023. The banking regulator issued its Financial Stability Report (FSR) and noted that the country’s financial system at the domestic level remained resilient as banks saw an improvement in their net NPA ratios. 

The central bank’s FSR found that the resilience of the non-banking financial companies (NBFCs) also improved and logged a CRAR (Capital to Risk (Weighted) Assets Ratio) at 27.6 per cent, reported PTI. The CRAR represents the proportion of a financial institution’s capital to its current and risk-weighted liabilities. This ratio is utilised to improve the efficiency and stability in financial systems. 

The report also found that the GNPA (Gross NPA) ratio of NBFCs improved to 4.6 per cent, while the return on assets (RoA) stood at 2.9 per cent, as of September 2023. Notably, an NPA is a loan or advance for which the principal or interest payment remains overdue for 90 days. Also, the RoA is used to measure a company’s profitability concerning its total assets.

The GNPA of banks also improved to a multi-year low of 3.2 per cent, the report noted. Notably, the report is reflective of the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) regarding risks to financial stability and the sturdiness of the Indian financial system. 

It also stated that the capital to risk-weighted assets ratio (CRAR) and the common equity tier 1 (CET1) ratio of scheduled commercial banks (SCBs) touched 16.8 per cent and 13.7 per cent respectively, as of September 2023. 

“Macro stress tests for credit risk reveal that SCBs would be able to comply with minimum capital requirements, with the system-level CRAR in September 2024 projected at 14.8 per cent, 13.5 per cent and 12.2 per cent, respectively, under baseline, medium and severe stress scenarios,” the report read.

Commenting on the current state of the Indian economy, the report noted that the domestic financial system remained strong, helped by robust macroeconomic fundamentals, healthy balance sheets of financial institutions, improving inflation, and external sector conditions, and consistent fiscal consolidation. At the same time, it said that the global economy faces several challenges such as prospects of slowing growth, large public debt, aggravating economic fragmentation, and extended geopolitical conflicts.