Banks' gross NPA ratio falls to multi-year low: RBI Financial Stability Report
Banks' gross NPA ratio falls to multi-year low: RBI Financial Stability Report
The Reserve Bank of India (RBI) has unveiled its latest Financial Stability Report for June, highlighting achievements in India's financial landscape.
The report reveals that the gross non-performing assets (GNPAs) of scheduled commercial banks (SCBs) have reached a multi-year low of 2.8% as of March 2024.
This milestone stresses the resilience and strength of the Indian economy and financial system, the central bank said.
Key highlights from the report
Strength of the financial system
Capital ratios: The capital to risk-weighted assets ratio (CRAR) and the common equity tier 1 (CET1) ratio of scheduled commercial banks (SCBs) stood at 16.8% and 13.9% respectively, at the end of March 2024.
Asset quality: The gross non-performing assets (GNPA) ratio of SCBs has fallen to a multi-year low of 2.8%, with the net non-performing assets (NNPA) ratio at 0.6% as of March 2024.
The GNPA ratio of all SCBs is expected to improve to 2.5% by March 2025 under the baseline scenario but could rise to 3.4% under a severe stress scenario.
The report stresses that SCBs are well-capitalised and capable of absorbing macroeconomic shocks without requiring further capital infusion.
All banks are expected to meet the minimum regulatory CET1 ratio of 5.5% even under adverse conditions.
Macro stress tests
Stress tests for credit risk indicate that SCBs will be able to comply with minimum capital requirements under various stress scenarios.
The system-level CRAR is projected to be 16.1% under the baseline scenario, 14.4% under medium stress, and 13.0% under severe stress by March 2025.
These scenarios are stringent conservative assessments and not forecasts.
The CET1 capital ratio of 46 major banks may decline from 13.8% in March 2024 to 13.4% in March 2025 under the baseline scenario.
Even in a severely stressed macroeconomic environment, the aggregate CET1 capital ratio would deplete by only 300 basis points.
Non-Banking Financial Companies (NBFCs)
NBFCs remain healthy, with a CRAR of 26.6%, a GNPA ratio of 4.0%, and a return on assets (RoA) of 3.3% at the end of March 2024.
Global economic context
The report also notes the heightened risks faced by the global economy due to prolonged geopolitical tensions, elevated public debt, and slow progress in disinflation.
Despite these challenges, the global financial system has remained resilient and financial conditions stable.