In the second quarter of 2019, the NPA ratio of Indian banks stood at 9.2%, indicating that nearly one in 10 loans had turned bad.
The bad loans remained hidden until the Reserve Bank of India (RBI) conducted an expansive Asset Quality Review in 2016.
From 2016 to 2019, the NPA ratio remained high but started declining afterward, including during the pandemic.
Factors contributing to the decline in NPAs include the Insolvency and Bankruptcy Code, which aided the recovery of distressed loans, and a shift in bank lending from industries to personal loans.
43
Uncertainties existed during and after the pandemic regarding the share of loan accounts under COVID-19-related moratoriums that would turn into NPAs.
The sudden shift to personal loans raised concerns about the ability of borrowers to service these loans if industries, which provide salaries to borrowers, were not functioning well.
The decline in NPAs, particularly in FY20, was largely due to loan write-offs by banks to maintain healthy balance sheets and preserve capital for lending fresh loans.
The latest financial stability report by the RBI indicates a decline in both Gross NPAs (GNPAs) and Net NPAs, reaching the lowest levels since 2015.
The profitability of the banking sector has improved, with the Return on Assets (RoA) climbing to 1.1% in 2023 from a negative 0.2% in 2018.
The Capital to Risk-Weighted Assets Ratio (CRAR), a measure of a bank's health, reached a record peak of 17.1% in 2023.
COMMENTS