Indian lenders' gross non-performing assets (GNPA) ratio continued its downtrend and fell to a 10-year low of 3.9% in March 2023 from a high of 11.5% in March 2018, according to the Reserve Bank of India's Financial Stability Report.

The net non-performing assets (NNPA) ratio declined to 1.0% in March, a level last observed in June 2011, indicating active and deep provisioning, the report says.

The profit after tax of Scheduled Commercial Banks (SCBs) registered a growth of 38.4% in 2022-23, led by strong growth in net interest income and a significant reduction in provisions, the RBI says. "SCBs sustained the momentum in profitability as their net interest margin (NIM) continued to grow. During 2022-23, the NIM improved by 30 bps as transmission of monetary policy tightening to deposit rates lagged the passthrough to lending rates," the report states.

Profit of public sector banks (PSBs) grew at a faster rate than that of private sector banks whose operating expenses increased by 29.4%, the report shows.

While there has been an overall improvement in asset quality in respect of personal loans, impairments in the credit card receivables segment have risen marginally, according to RBI.

Credit for agriculture, services and personal loans grew faster than lending to the industrial sector. The strength of loan demand was reflected in the rising volume of new loans extended by SCBs; of which agriculture, households and working capital loans registered over 20% growth, the central bank says in its report.

The asset quality of the top 100 borrowers improved, with their share in SCBs’ GNPA declining from 6.8% as of March 2022 to 1.6% as of March 2023.

The share of large borrowers in gross advances of SCBs declined successively over the past three years (from 51.1% in March 2020 to 46.4% in March 2023) as retail loans grew faster than borrowings by corporates. The share of large borrowers in the GNPAs of SCBs also came down substantially (from 75.7% in March 2020 to 53.9% in March 2023). Asset quality in the large borrower portfolio saw significant improvement: the GNPA ratio declined from 12.2% to 4.5% over this period, the RBI says.

Asset quality of lenders continued to improve as the quarterly slippage ratio, measuring new accretions to NPAs as a share of standard advances at the beginning of the quarter, moderated further. The write-off to GNPA ratio, which had been declining consecutively through 2020-21 and 2021-22, increased in 2022-23 due to large write-offs by private sector banks, the RBI says.

The health of the Indian banking system is robust, fortified by multi-year low non-performing loans and adequate level of capital and liquidity buffers, the RBI says.

The improvement in banks' asset quality has been broad-based, with a steady decline in the stressed advances ratio across all major sectors, it adds.

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