December 31st 2024.
In recent news, it has been reported that the asset quality of India's banks has seen a significant improvement. According to the latest financial stability report released by the Reserve Bank of India (RBI), the gross non-performing assets (NPA) of banks have declined to 2.6 per cent of total advances in September 2024. This is the lowest level seen in the past 12 years, which is certainly a positive development.
The report also highlighted that the net NPA ratio stood at around 0.6 per cent, as of December 2024. This indicates a steady decline in non-performing assets, which is a promising trend. The RBI also noted that this improvement can be attributed to various factors such as reduced slippages, increased write-offs, and a consistent demand for credit.
Furthermore, the report stated that the improvement in asset quality was seen across different sectors and bank groups. This indicates a broad-based improvement and not limited to a specific segment. Additionally, the share of large borrowers in the NPAs of banks has also decreased in the past two years, which is another positive development.
Within the large borrower segment, the share of standard assets has been consistently increasing, showing a healthier credit portfolio. The report also noted that the share of top 100 borrowers has reduced, indicating a growing appetite for credit among medium-sized borrowers. It is worth mentioning that none of the top 100 borrowers were classified as NPAs in September 2024, which is a significant achievement.
The report also highlighted the improvement in profitability of scheduled commercial banks (SCBs) during the first half of 2024-25. The profit after tax (PAT) has seen a 22.2 per cent year-on-year surge, with public sector banks and private sector banks recording a growth of 30.2 per cent and 20.2 per cent, respectively. On the other hand, foreign banks experienced a single-digit growth.
The RBI also emphasized the soundness of SCBs, stating that they have strong profitability, declining NPAs, and sufficient capital and liquidity buffers. This is evident from the fact that return on assets and return on equity are at their highest in the past decade, while the gross NPA ratio has reached a multi-year low.
In conclusion, the RBI's banking stability indicator, which assesses the resilience of the domestic banking system, has shown further improvement in the first half of 2024-25. This can be attributed to robust capital buffers, strong earnings, and sustained improvement in asset quality. The RBI's report paints a positive picture of the Indian banking system, which is certainly reassuring for the economy as a whole.
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