indian-banking-system-s-gross-npas-expected-to-improve-to-2-1-by-fy25-report

A recent report by domestic rating agency Care Ratings suggests that the Gross Non-Performing Assets (GNPA) are set to see further improvement, potentially reaching up to 2.1 percent by the end of the fiscal year 2025.

 

This forecast comes amidst ongoing efforts within the banking industry to address asset quality concerns and enhance financial stability.

 

According to the report released on Friday, GNPA levels are anticipated to range between 2.5 to 2.7 percent in the fiscal year 2024, with a subsequent decline expected to bring them down to 2.1 to 2.4 percent by FY25. 

 

The journey towards restoring balance sheet integrity commenced with the Reserve Bank of India (RBI)'s directive in the mid-2010s, prompting banks to undertake a comprehensive assessment and classification of stressed assets as Non-Performing Assets (NPAs). This initiative aimed to ensure greater transparency and accuracy in financial reporting, aligning with global best practices.

 

While outlining the optimistic outlook, the rating agency also identified several downside risks that could potentially impact the attainment of these targets. Factors such as elevated interest rates, regulatory changes, liquidity constraints, and global economic uncertainties were highlighted as potential challenges that could hinder progress in asset quality management.

 

The report sheds light on the evolution of GNPA levels over the past decade, citing a notable surge to 11.2 percent in FY18 from 3.8 percent in FY14, primarily attributed to the Asset Quality Review (AQR) exercise conducted in 2015-16. 

 

Subsequent years witnessed a gradual recovery, with GNPA levels registering a decade-low of 3.9 percent in FY23, further declining to 3 percent in the December quarter of FY24. 

 

Sector-wise analysis reveals varying trends in GNPA ratios, with notable reductions observed in key segments. The agriculture sector reported a decline in GNPA ratio from 10.1 percent in March 2020 to 7 percent in September 2023, reflecting improved credit quality and borrower resilience. Similarly, the industrial sector witnessed a significant decrease from 14.1 percent in March 2020 to 4.2 percent in September 2023, driven by corporate deleveraging and resolution mechanisms.

 

The report emphasizes the importance of closely monitoring the performance of unsecured personal loans and restructured accounts to preempt potential risks and uphold asset quality standards.