Banks' gross NPAs declined to 6.9% at September end from 8.2% in March 2020, says RBI report

Scheduled commercial banks' (SCB) gross non-performing assets (NPAs) declined from  8.2 percent at end-March 2020 to 7.3 percent at end-March 2021 and further to 6.9 percent at end-September 2021, the  RBI said in its report on Trend and Progress of Banking in India 2020-21 released on December 28.

Also, the return on assets (RoA) of SCBs improved from 0.2 percent at end-March 2020 to 0.7 percent at end-March 2021, aided by stable income and decline in expenditure, the report said.

The report has presented the performance of the banking sector, including co-operative banks, and non-banking financial institutions during 2020-21 and 2021-22 so far.

Further, the report said some of the policy measures taken by the RBI in response to the COVID-19 pandemic reached the pre-announced sunset dates in 2021-22. Certain liquidity measures have been wound down as a result, while other regulatory measures, including deferment of implementation of net stable funding ratio (NSFR), restrictions on dividend payouts by banks, deferment of implementation of the last tranche of capital conservation buffer, have been realigned to avoid extended forbearance and risks to financial stability while providing targeted support to needy sectors, the RBI said.

“Even though initiation of fresh insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) was suspended for a year till March 2021, it constituted one of the major modes of recovery in terms of amount recovered,” the RBI report said.

During 2020-21, the consolidated balance sheet of SCBs expanded in size, notwithstanding the pandemic and the resultant contraction in economic activity. In 2021-22 so far, nascent signs of recovery are visible in credit growth. Deposits grew by 10.1 percent at end-September 2021 as compared with 11 percent a year ago, the RBI said.

The report further noted that the balance sheet growth of urban co-operatives banks (UCBs) in 2020-21 was driven by deposits, while subdued credit growth led to acceleration in investments. Their financial indicators, including capital position and profitability, improved, the report said.

Further, the profitability of state co-operative banks and district central co-operative banks improved in 2019-20, while their asset quality deteriorated, the report noted, adding that the consolidated balance sheet of NBFCs expanded during 2020-21, driven by credit and investments of non-deposit taking systemically important NBFCs (NBFCs-ND-SI).
“Their asset quality and capital buffers also improved,” the report said.

In a nutshell, the Indian financial sector is standing at crossroads: while the immediate impact of the fallout of COVID-19 will dominate the short-term, larger challenges relating to climate change and technological innovations will need a carefully crafted strategy, the RBI report said.