Gross Non-Performing Assets (GNPAs) of Scheduled Commercial Banks (SCBs) reduced by 21.1% y-o-y to Rs. 4.85 lakh crore as of December 31, 2023, due to lower slippages, steady recoveries & upgrades, and some write-offs. Meanwhile, advances grew by 20.3% y-o-y in the same period. The GNPA ratio of SCBs reduced to 3.0% as of December 31, 2023, from 4.6% over a year ago, according to a CareEdge report.
The GNPA ratio of SCBs has moved past the pre-asset quality review (AQR) levels in Q3FY24.
This trend is expected to be maintained in FY24 due to several factors, including healthy growth in advances driven by an uptick in economic activities, lower incremental slippages, and a reduction in restructured portfolios. Hence, the SCB GNPA ratio could improve to 2.80%-2.90% by FY24 end. NNPA ratio is at a record low at 0.8% as of December 31, 2023, and is likely to trend even lower in the next few quarters as PSBs continue to
report improved asset quality figures. Further SCBs also maintain a substantial buffer for provisions, which also creates a somewhat benign credit cost environment. Due to the sharp growth trends and recent RBI notification, the performance of unsecured loans and other newly originated personal loans remains a key monitorable.
Downside risks include an increase in crude oil prices, global economic slowdown, global monetary and liquidity tightening, and elevated interest rates.
Healthy parameters
Net Non-Performing Assets (NNPAs) of SCBs reduced by 28.1% y-o-y to Rs 1.09 lakh crore as of December 31, 2023. The NNPA ratio of SCBs reduced to 0.7% from 1.2% in Q3FY23 which is an all-time low.
Restructured assets for select 10 PSBs reduced by 16.6% y-o-y to Rs. 0.97 lakh crore as of December 31, 2023. Meanwhile, restructured assets of selected five Private Banks (PVBs) declined by 37.6% to Rs. 0.11 lakh crore due to repayments made by the borrowers, an uptick in the economic activities and slipping some accounts into the NPAs. Restructured assets (Ten PSBs + Five PVBs) as a percentage of net advances stood at 0.8% as of December 31, 2023, dropping by approximately 50 bps over a year ago period.
The Provision Coverage Ratio (PCR) of SCBs expanded by 289 bps y-o-y to 77.4% Q3FY24 mainly due to improvement in overall asset quality.
SCBs credit cost (annualised) declined by 35 basis points (bps) y-o-y to 0.38% in Q3FY24. Besides, it has been generally trending down from 0.87% in Q3FY22. Public Sector Banks (PSBs) have been holding substantial buffers for provisions over the last 6-8 quarters along with continuous improvement in the asset quality required a lower level of incremental provisioning, resulting in lower credit cost.
As of March 31, 2018, the NNPA ratio stood at 6% in FY18 which dropped to 0.7% as of December 31, 2023. It was attributed to an overall improvement in asset quality due to healthy recoveries, lower slippage, write-offs, creating provisions and more resolution & settlement with IBC 2016.
