The gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) has reached pre-asset quality review (AQR) levels in Q1FY24 and this trend is expected to continue in FY24, according to CARE Ratings.

Several factors, including a healthy growth in advances driven by an uptick in economic activities, lower incremental slippages, and a reduction in restructured portfolios will support this trend.

Hence, the SCB GNPA ratio could improve to 2.9-3.05 per cent by FY24 end (pre-AQR GNPA level was at 3.8 per cent in FY14). The GNPA ratio of SCBs had reduced to 3.7 per cent as of June 30, 2023, from 5.7 per cent over a year ago.

Asset quality

Net NPA ratio is at a record low of 0.9 per cent, as of June 30, 2023, and is likely to trend even lower in the next few quarters, as public sector banks (PSBs) continue to report improved asset quality figures, the credit rating agency said in a report.

Further, SCBs also maintain a substantial buffer for provisions, which creates a somewhat benign credit cost environment.

“Due to the sharp growth trends, the performance of unsecured loans also remains a key monitorable along with the MSME segment.

“Downside risks include an increase in crude oil prices, global economic slowdown, global monetary and liquidity tightening, and elevated interest rates,” stated the report authored by Sanjay Agarwal, Senior Director; Saurabh Bhalerao, Associate Director; and Vijay Singh Gour, Lead Analyst, CARE Ratings.

GNPAs of SCBs reduced by 25.6 per cent year-on-year (y-o-y) to Rs 5.32 lakh crore as of June 30, 2023, due to lower slippages, steady recoveries, and upgrades and write-offs, says the report.

GNPAs dropped in Q1FY24, despite a healthy growth in advances at 16.7 per cent y-o-y in the same period.

Net NPAs of SCBs reduced by 34.7 per cent y-o-y to Rs. 1.25 lakh crore as of June 30, 2023.

Credit off-take

The agency said credit off-take experienced robust growth of 16.2 per cent in Q1FY24 and the outlook remains positive for FY24, driven by economic expansion, increased capital expenditure, implementation of the production-linked incentive (PLI) scheme, and a push for retail credit.

Credit growth is likely to be in the range of 13.-13.5 per cent for FY24, excluding the impact of the merger of HDFC with HDFC Bank, it added.