Banks have seen significant improvement in their asset quality and their gross non-performing assets fell to 9.1 per cent by the end of September this year, according to the Reserve Bank of India. This was the same level at March-end 2019.

“The GNPA ratio of all scheduled commercial banks declined in 2018-19 after rising for seven consecutive years, as recognition of bad loans neared completion,” said the RBI report on ‘Trend and Progress of Banking in India 2018-19’.

According to the report, which was released on Tuesday, gross non-performing assets of banks was 11.2 per cent of gross advances in 2017-18.

Similarly, net NPAs also almost halved to 3.7 per cent of net advances in 2018-19 from 6 per cent in 2017-18.

Gross NPAs of public sector banks improved to 11.6 per cent in 2018-19 from 14.6 per cent a year ago, while net NPAs stood at 4.8 per cent from 8 per cent during this period.

Private sector banks’ (PVB) gross NPA deteriorated to 5.3 per cent in 2018-19 from 4.7 per cent in the previous fiscal, while their net NPAs stood at 2 per cent when compared to 2.4 per cent due to the classification of IDBI Bank as a private sector lender.

“Notwithstanding the improvement in 2018-19, the overhang of NPAs remains high. Further reduction in NPAs through recoveries hinges around a reversal of the downturn in the economy,” the RBI noted.

The report noted that the decline in the slippage ratio, as well as a reduction in outstanding GNPAs, helped in improving the GNPA ratio. “While a part of the write-offs was due to ageing of loans, recovery efforts received a boost from the Insolvency and Bankruptcy Code.

Asset quality review

The restructured standard advances to gross advances ratio began declining after the asset quality review (AQR) in 2015 and reached 0.55 per cent at March-end 2019,” it further said. In terms of sectors, about 74 per cent of the GNPAs were from non-priority sectors at March-end 2019 against 78.5 per cent at the end of 2017-18. Gross NPAs in agriculture rose to 12.4 per cent of total NPAs in 2018-19 and increased marginally to 9.9 per cent for SMEs.

While the priority sector accounted for approximately 36 per cent of total bank lending last fiscal, its share in total GNPAs is 26 per cent of the total.

GNPAs from priority sector loans were lower at 21.5 per cent in 2017-18. Industrial GNPA ratio remained high at 17.4 per cent, constituting about two-thirds of total NPAs at the end of September 2019.

The RBI report, however, noted that the stress in large borrowal accounts has been on the rise for both private and public sector banks in the first half of 2019-20.

NPAs in the larger borrowal accounts (exposure of ₹5 crore or more) had contributed 91 per cent of total GNPAs in 2017-18 after the RBI withdrew various restructuring schemes, it said, adding that in 2018-19, all banks recorded a synchronised decline in the special mention accounts, restructured standard advances (RSA) and GNPAs, attesting to the broad-based improvement in asset quality in 2018-19.

“Yet, these accounts – which constituted 53 per cent of gross loans and advances – contributed 82 per cent of GNPAs at March-end 2019,” the report noted.

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