The Reserve Bank of India (RBI) on Thursday said banks' gross NPA ratio has fallen to a 7-year low of 5 percent and the banking system remains sound and well-capitalised, PTI reported, quoting the 26th issue of the Financial Stability Report.
Going forward, the RBI projects the gross non-performing assets (GNPA) ratio to fall further to 4.9 percent in September 2023, it said.
According to the FSR report, the capital positions of scheduled commercial banks (SCBs) remained strong in September 2022. The Capital to Risk Weighted Assets Ratio (CRAR) and Common Equity Tier 1 (CET1) ratio of SCBs stood at 16 percent and 13 percent, respectively.
"Their GNPA ratio has been steadily trending down to a seven-year low of 5% in September 2022, while net non-performing assets (NNPA) have dropped to a ten-year low of 1.3% of total assets," PTI quoted the report.
The provisioning coverage ratio (PCR), on the other hand, has been increasing steadily since March 2021, reaching 71.5 percent.
The profit after tax of SCBs registered a growth of 40.7 percent in the first half of the current fiscal year. Following the RBI's rapid rate hikes, banks raised lending rates quickly but went slow on deposit rates, resulting in higher net interest margins in the second quarter. In addition, lower provisions have also contributed to the bank's profitability.
Finance Minister Nirmala Sitharaman stated earlier in November that the government's efforts to reduce bad loans are bearing fruit, with 12 public sector banks reporting a 50 percent increase in combined net profit of ₹25,685 crore for the second quarter ended September.
On inflation, the FSR report said that though prices are elevated, frontloading of monetary policy actions and supply side interventions are easing the pressure.
In the financial sector, it said, buoyant demand for bank credit and early signs of a revival in the investment cycle are benefiting from improved asset quality, a return to profitability, and resilient capital and liquidity buffers, according to the PTI report.
These strengths are helping the financial system weather external spillovers, tightening global financial conditions, and high volatility in financial markets, it added.
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