India’s banking sector has achieved a significant milestone with the gross non-performing assets (GNPA) ratio dropping to 2.6% of total advances as of September 2024, the lowest level in 12 years, according to the Reserve Bank of India’s Financial Stability Report. This improvement in asset quality has been attributed to declining slippages, higher write-offs, and sustained credit demand.
The net NPA ratio also stood at a low of 0.6%, underscoring the strengthened financial health of the banking sector. This improvement was observed across various sectors and bank groups, with notable advancements in the asset quality of large borrower portfolios. The GNPA ratio for large borrowers declined from 4.5% in March 2023 to 2.4% in September 2024, reflecting significant recovery trends in this critical segment.
The proportion of standard assets in the large borrower category has steadily risen over the past two years. Furthermore, the share of large borrowers in total GNPA decreased to 34.6% in September 2024, signaling a growing credit appetite among medium-sized borrowers. Notably, none of the top 100 borrowers were classified as NPAs during this period.
India’s scheduled commercial banks reported robust profitability during the first half of the 2024-25 fiscal year, with profit after tax increasing by 22.2% year-on-year. Public sector banks achieved a 30.2% rise in profit after tax, while private sector banks recorded a 20.2% increase. Foreign banks experienced a more modest growth of 8.9%.
The Reserve Bank of India emphasized the banking sector’s soundness, highlighting robust profitability, declining non-performing assets, and solid capital and liquidity buffers. Key performance metrics such as return on assets and return on equity reached their highest levels in a decade, underscoring the sector’s resilience.
The Banking Stability Indicator, which assesses the domestic banking system’s ability to withstand economic fluctuations, showed further improvement during the first half of the 2024-25 fiscal year. This reflects the banking sector’s preparedness to address potential challenges, supported by strong capital buffers and improved earnings.
With sustained improvements in asset quality and resilience in financial infrastructure, India’s banking sector continues to strengthen, contributing to the country’s economic stability. The decline of the GNPA ratio to a 12-year low is a testament to the success of reforms and operational efficiencies, as highlighted in the Reserve Bank of India’s report.
