The asset quality of Indian banks is expected to improve, aided by a fall in fresh slippages, analysts have said.
“Asset quality will improve as banks continue to provide for existing gross non-performing assets (NPAs) and incremental slippages also continue the downward trend,” said Jindal Haria, director-financial institutions, at India Ratings and Research.
A loan becomes an NPA when interest or the principal amount is not paid for 90 days. Slippage refers to the fresh addition of bad loans.
As per a CareEdge Ratings report, the gross NPAs of scheduled commercial banks fell 19.7 percent to Rs 6.1 lakh crore as of December 31, 2022, from Rs 7.5 lakh crore in the year-ago period. The gross NPA ratio reduced to 4.5 percent from 6.6 percent.
The gross NPA ratio of scheduled commercial banks is expected to reduce in FY24 due to lower incremental slippages, a reduction in special mention account books & restructuring portfolios, and healthy growth in advances, said Sanjay Agarwal, senior director at CareEdge Ratings.
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Write-offs
According to CareEdge, the gross NPAs of public sector banks reduced by 17.9 percent on-year to Rs 4.6 lakh crore in the third quarter of the current financial year due to steady recoveries and upgrades, higher write-offs and lower slippages.
Their write-offs increased by 25.2 percent on-year to Rs 29,000 crore from Rs 23,000 crore in Q3 of FY22 and fresh slippages declined by 12 percent. A loan is written off when there is no hope of recovery from the borrower. Banks need to make full provisions for written-off assets.
“Banks are not expecting significant slippages from the 1.4 percent restructured portfolio,” Haria said.
Most banks reported an improvement in bad loan numbers in the third quarter.
State Bank of India reported 3.14 percent gross NPAs and 0.77 percent net NPAs, lower than 4.5 percent gross NPAs and 1.34 percent net NPAs a year earlier.
Bank of Baroda reported 4.53 percent gross NPAs and 0.99 percent NPAs, sharply lower than last year’s figures.
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Bank of Baroda managing director Sanjiv Chadha said during a press conference after its Q3 results that gross NPAs were really “a function of how you again handle write-offs”.
“You see that gross NPAs have come down by 275 basis points over the last one year. I think there's room for it to come down substantially,” he said.
HDFC Bank reported a marginal improvement in its asset quality in the December quarter.
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