The banks' gross non-performing assets (NPA) ratio fell to a decadal low of 3.9% as of March 2023 and 3.2% as of September 2023, thus showing an improvement in the asset quality of banks, the Reserve Bank of India (RBI)’s Trend and Progress of Banking in India, 2023, report shows.

In FY 2022-23, according to the data, around 45% of the reduction in gross NPAs of banks was contributed by "recoveries and upgradations".

Gross NPAs of commercial banks for FY23 stood at ₹5.7 lakh crore, in which the highest share was of public sector banks at ₹4.2 lakh crore. Private banks, foreign banks and small finance banks’ total NPAs were recorded at ₹1.2 lakh crore, ₹9,526 crore, and ₹8,608 crore, respectively.

NPAs at the end of FY23 fell to ₹1.02 lakh crore for PSBs from ₹1.5 lakh crore a year earlier. For private banks, the net NPAs reduced to ₹29,507 crore from ₹43,738 crore in the previous year. For all commercial banks, net NPAs in FY23 dropped 33% to ₹1.3 lakh crore from ₹2.04 lakh crore in FY22.

Image : RBI

The slippage ratio — which measures new accretions to NPAs as a share of standard advances at the beginning of the year — moderated during 2022-23 and further in the first half of the year. "A mix of write-offs, upgradations and recoveries contributed to the reduction in NPAs," the central bank says.

The increase in the proportion of standard assets to total advances was sustained for all bank groups during 2022-23. The amount of NPAs decreased for all bank groups, except small finance banks.

The share of large borrowal accounts (accounts with a total exposure of ₹5 crore and above) in total advances declined to 46.4% at the end of March 2023 from 47.8% a year ago. Their contribution to total NPAs also fell to 53.9% from 64% during the year. The SMA-1 and SMA-2 ratios, which indicate potential stress, declined across bank groups for overall and large borrowal accounts, says the central bank.

In recoveries, the RBI says the Insolvency and Bankruptcy Code (IBC) remains the dominant mode of recovery, with a share of 43% in the total amount recovered in 2022-23 and the recovery rate also improved. The NPAs of banks recovered via various channels stood at ₹1.2 lakh crore in FY23 of the total amount involved worth ₹8.3 lakh crore. In FY22, the amount recovered stood at ₹89,571 crore of the total amount involved worth ₹5 lakh crore.

Image : RBI

The clean-up of balance sheets through the sale of NPAs to asset reconstruction companies (ARCs) shot up in 2022-23. During 2022-23, 9.7% of the previous year’s stock of SCBs’ GNPAs was sold to ARCs as compared with only 3.2% in 2021-22. On the other hand, the acquisition cost of ARCs as a proportion to book values of assets declined from 33% at the end of March 2022 to 29.8% at the end of March 2023.

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