In a bid to bring down non-performing assets (NPA) ratio to its lowest levels in last 12 years, banks have taken a provisioning hit of over Rs 18 lakh crore from FY13- FY25.
According to the data from Ace Equity, the asset quality of the banks recorded a sustained improvement in June FY25 quarter with most banks reporting gross NPA ratio lowest since 2014, and net NPA ratios lowest since 2011.
As per the analysis of the 25 state-owned and private banks, gross NPA ratios of Bank of India, Indian Bank, Punjab & Sind Bank, Federal Bank and Union Bank of India reduced to lowest since 2014, while IDBI Bank, Indian Overseas Bank, UCO Bank, among others reported lowest level of NPA vis-a-vis their best seen in FY11- FY13.
Similarly, net NPA ratios of 12 out of 25 banks have reported to the lowest levels since 2011. These 12 banks include, Canara Bank, Central Bank of India, Indian Bank, Punjab National Bank, among others.
Steep provisioning that banks had to undertake as a result of stringent clean up actions from FY16 - FY19 which include asset quality review (AQR), implementation of the IBC code, and consolidation of PSU banks have ensured that the banking sector is in much better health.
The Financial Stability Report (FSR) of the Reserve Bank of India (RBI) said that the asset quality of banks has continued to improve. “Asset quality continue to improve and capital positions remain robust, supported by capitalisation of high profits, the latter reflected in close to decadal high levels of return on equity and return on assets ratios,” it said.
With the improvement in asset quality of the banks, profitability of 25 banks analysed have also seen a noteworthy improvement.
Public sector banks' cumulative profit crossed Rs 1.4 lakh crore in the financial year ended March 2024, recording a growth of 35 percent over the previous year on a high base of Rs 1 lakh crore.
Private banks have reported higher net profit growth in fiscal year 2024 compared with the bottomline growth reported by public sector banks, according to a Moneycontrol analysis. In FY24, banks cumulatively posted a net profit of more than Rs 3 lakh crore for the first time ever.
RBI Governor Shaktikanta Das in the FSR report said the banking and corporate sector balance sheets have been strengthened, engendering a ’twin balance sheet advantage’ for growth.
He stressed the need for international cooperation and regulatory focus to tackle challenges like cyber risk and climate change. "Financial stability is non-negotiable, and all stakeholders in the financial system must work to preserve this at all times,” Das said.
Amid events like some of the banks facing severe stress or even going down globally, Das had underlined the need to be watchful, and added that the financial sector regulators and regulated entities in India are committed to stability.
In a report, Motilal Oswal said they factor in a modest rise in provisioning expenses as the recovery from the existing NPA/TWO pools moderates, the first quarter is a seasonally weak quarter and is characterized by some rise in agri NPAs, and credit costs normalize gradually after being extremely benign over the recent period.
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