New Delhi (TIP)- The gross non-performing assets (GNPA) ratio of scheduled commercial banks, which moderated to a 12-year low of 2.8 per cent in March 2024, may further improve to 2.5 per cent by March 2025, the Reserve Bank of India (RBI) said on Thursday, June 27.
The estimate for GNPA ratio for March 2025 is based on the macro stress tests, performed to assess the resilience of banks’ balance sheets to unforeseen shocks emanating from the macroeconomic environment.
“The asset quality of scheduled commercial banks (SCBs) recorded sustained improvement and their GNPA ratio moderated to a 12-year low in March 2024 (to 2.8 per cent). Their net NPA (NNPA) ratio too improved to a record low of 0.6 per cent,” the RBI said in its Financial Stability Report (FSR) for June 2024, released on Thursday, June 27.
Under the baseline stress scenario, the GNPA ratio of all banks may improve to 2.5 per cent by March 2025. If the macroeconomic environment worsens to a severe stress scenario, the GNPA ratio may rise to 3.4 per cent, the RBI’s half yearly report said.
In the severe stress scenario, the GNPA ratios of public sector banks (PSBs) may increase from 3.7 per cent in March 2024 to 4.1 per cent in March 2025, whereas it may go up from 1.8 per cent to 2.8 per cent for private sector bank (PVBs) and from 1.2 per cent to 1.3 per cent for foreign banks (FBs).
Stress tests are conducted covering credit risk, interest rate risk and liquidity risk and the resilience of commercial banks in response to these shocks is studied. Using the stress tests, the RBI projects impairment or bad loans and capital ratios over a one-year horizon under a baseline and two adverse scenarios – medium and severe.
The FSR report said that in the second half of FY2025, public sector banks recorded a substantial reduction (76 basis points) in their gross NPA ratio. “While the GNPA stock decreased across all bank groups, active and deep provisioning by PSBs and FBs resulted in an improved provisioning coverage ratio (PCR) in March 2024,” the report said.
The half-yearly slippage ratio (new NPA accretions as a share of standard advances) decreased across bank groups. Though the amount of write-offs declined during the year, the write-off ratio remained almost at the same level as a year ago, due to reduction in GNPA stock, it said.