Banking sector's GNPA ratio hits 13-yr low at 2.5%; frauds drop to decade-low

Indian scheduled commercial banks' (SCBs) asset quality has improved, with the gross non-performing assets (GNPA) ratio falling to its lowest in 13 years at 2.7% in March-end 2024 and 2.5% in September 2024 from 3.9% as of March 2023, according to the RBI's report on trend and progress of banking in India 2023-24.

The improvement in asset quality of banks, measured by GNPA ratios, started in 2018-19. GNPAs of SCBs were reduced by 15.9% y-o-y to ₹4.8 lakh crore as of March 31, 2024. "During 2023-24, around 44.4% of the reduction in GNPAs was attributable to better recoveries and upgradations," says the RBI.

The net NPA (NNPA) ratio, meanwhile, declined to a "decadal low" of 0.62% at the end of March 2024, driven by stronger provision buffers. It improved further to 0.57% as of September 2024.

During 2023-24, the amount involved in frauds was the "lowest in a decade", while the average value was the lowest in 16 years.

In 2023-24, the share of internet and card frauds in the total stood at 44.7% in amount, the highest for all bank groups, and 85.3% in the number of cases. Fraud cases reported by private banks accounted for 67.1% of the total. In the amount involved, however, PSBs had the highest share.

As of March 2024, India’s commercial banking sector consisted of 12 public sector banks (PSBs), 21 private sector banks (PVBs), 45 foreign banks (FBs), 12 SFBs, 6 PBs, 43 RRBs, and 2 LABs. Out of these 141 commercial banks, 137 were classified as scheduled banks, while four were non-scheduled.

The RBI says the robust credit growth led to the expansion of the consolidated balance sheet of SCBs during 2023-24. During 2023-24, banks’ balance sheets expanded at a healthy pace, with robust deposit and credit growth. Their profitability improved, and liquidity and provision buffers remained comfortable. "Indian banks are at the forefront of digitalisation, aiming to leverage technology for productivity and efficiency gains. With the adoption of new technology, however, the risks of cyber attacks, digital frauds, data breaches and operational failures have also increased."

The consolidated balance sheet of banks, excluding regional rural banks, increased by 15.5% during 2023-24 compared to 12.2% during 2022-23. On the assets side, this expansion was driven by buoyant bank credit, which increased by 16% in 2023-24 on top of 17.4% growth a year ago. SCBs’ investments grew by 11.6% in 2023-24 compared with 11.4% a year ago.

The share of PSBs in the consolidated balance sheet of SCBs fell to 55.2% at the end of March 2024 from 57.6% at the end of March 2023, with private banks increasing from 34.7% to 37.5%. In liabilities, the deposit growth of banks accelerated to 13.4% in 2023-24 from 11% a year ago.

The capital-to-risk-weighted assets ratio (CRAR) of SCBs was 16.8% in September 2024, with all bank groups meeting the regulatory minimum requirement and the common equity tier 1 (CET1) ratio requirement. The non-banking financial companies (NBFC) sector exhibited double-digit credit growth, while its unsecured lending contracted and asset quality improved further - the GNPA ratio dropped to 3.4% at end-September 2024; strong capital buffers kept the CRAR well above the stipulated norm at end-September 2024.

In its outlook, the RBI says going forward, there is a continuing need for banks to strengthen their risk management standards, IT governance arrangements and customer onboarding and transaction monitoring systems to check unscrupulous activities, including suspicious and unusual transactions.