The financial position of commercial banks in India has stayed robust, marked by the sustained expansion in loans and deposits, while their gross bad loan ratio has dropped to multi-year lows, a central bank report showed on Thursday (26.12.2024).
Banks have also cleaned up their balance sheets in recent years by selling bad loans to asset reconstruction companies or by writing them off. Further, their capital and liquidity buffers stayed well above the regulatory needs while profitability improved for the sixth consecutive year in fiscal year 2023-24, the report added.
In their report on ‘Trend and Progress of Banking in India 2023-24’, the central bank in India highlighted as under.
Robust credit growth led to the expansion of the consolidated balance sheet of scheduled commercial banks (SCBs) during 2023-24.
The capital to risk-weighted assets ratio (CRAR) of SCBs was 16.8 per cent at September 2024, with all bank groups meeting the regulatory minimum requirement and the common equity tier 1 (CET1) ratio requirement.
Asset quality improved, with the gross non-performing assets (GNPA) ratio, or the proportion of bad assets to total loans, slipping to an over-13-year low of 2.5 per cent at the end of September from 2.7 per cent at end-March.
Net bad loans of banks fell to 0.57 per cent of total loans in September, from 0.62 per cent in March, driven by stronger loan-loss buffers.
Scheduled Commercial Banks’ profitability rose for the sixth consecutive year in 2023-24 and continued to rise in H1:2024-25 with the return on assets (RoA) at 1.4 per cent and return on equity (RoE) at 14.6 per cent.
The combined balance sheet of urban co-operative banks (UCBs) expanded in 2023-24, with asset quality improving for the third consecutive year while capital buffers and profitability were strengthened.
The non-banking financial companies (NBFC) sector exhibited double-digit credit growth, while its unsecured lending contracted and asset quality improved further – the GNPA ratio dropped to 3.4 per cent at end-September 2024; strong capital buffers kept the CRAR well above the stipulated norm at the end-September 2024.
The asset quality of non-bank finance companies (NBFCs) also improved further in 2023-24 amid a sustained double-digit balance sheet growth, the central bank said.
Over the past year, the RBI has warned the financial sector against “all forms of exuberance”, tightened rules for credit card and personal loans, made it more expensive for non-banking finance companies to borrow from banks, and imposed restrictions on non-compliant lenders.
“Going forward, banks need to strengthen their risk management and IT governance standards, and focus on checking unscrupulous activities, including suspicious and unusual transactions”, the RBI said.
While highlighting the need for robust risk management frameworks, RBI said that an imprudent ‘growth at any cost’ approach of NBFCs would be counterproductive. It added that NBFCs need to strengthen customer grievance practices and avoid recourse to usurious interest rates.
