Economic Survey 2023: Banks’ gross GNPAs likely to drop 4.9 per cent by March 2023

Indian banks’ bad loans are set to decline significantly supported by an improvement in economic activities on the ground enabling borrowers to meet their payment obligations on time, the Economic Survey 2023 tabled in Parliament on January 31 showed.

The Gross Non-performing assets (GNPAs) of banks is likely to fall to 4.9 per cent of the total loan book by March, 2023 from around 8.2 percent in March 2020, the Survey showed.

The GNPAs had fallen to a seven-year low of five percent in September 2022 as economy recovered from the pandemic shocks. Lower slippages and the reduction in outstanding GNPAs through recoveries, upgrades and write-offs led to this decrease.

Further, lower GNPAs, combined with high provisions accumulated in recent years, contributed to a decline in the net non-performing assets (NNPA).

Going ahead, as per the baseline scenario of the Reserve Bank of India's (RBI) stress testing framework, the declining tendency in the GNPA ratio is likely to continue and is projected to drop further to 4.9 per cent in March 2023, the survey highlighted.

GNPA For NBFCs

The survey highlighted that the continuous improvement in asset quality of NBFCs can be seen in the declining GNPA ratio. From the peak of 7.2 percent GNPA during the second wave of the pandemic in June 2021, the ratio has dropped to 5.9 percent in September 2022.

The decline in GNPAs and the capital position of NBFCs also remains robust, with a Capital to Risk (Weighted) Assets Ratio (CRAR) of 27.4 percent in end-September 2022, slightly lower than 27.6 per cent in March 2022, the survey showed.

What do the banks Q3 results show? 

Most banks in their results for October-December 2022 quarter posted further reductions in NPA numbers. This was due to the rise in profitability of both public and private sector banks.

The asset quality of banks has shown significant improvement in the first half of the fiscal year 2023, RBI’s financial stability report for December 2022 showed. Scheduled commercial banks' GNPA dropped to a seven-year low. Whereas, the NNPA has contracted to a decade low, the report said.

Going forward, most banks have projected further drop in GNPA and NNPA numbers.

Reserve Bank of India’s latest Financial Stability Report for December 2022 showed that the asset quality of scheduled commercial banks (SCBs) continued to decline from 7.4 percent in March 2021 to a six-year low of 5.9 percent in March 2022 led by the support measures of RBI during the pandemic.

This fall, along with a notable improvement in the provision coverage ratio from 67.6 percent in March 2021 to 70.9 percent in March 2022, does ensure that the major cleaning of the bad loans in the banking system is behind us.