Financial Stability Report: Gross NPAs Could Fall Further, After Hitting Fresh Lows, Says RBI

The Reserve Bank of India projected that gross non-performing asset ratio of the Indian banking system could fall to 2.5% by March 2025, if the economy continues to remain stable.

The asset quality of scheduled commercial banks recorded sustained improvement and their gross NPA ratio moderated to a 12-year low of 2.8% in March 2024, according to the central bank.

In a medium stress scenario, the gross NPA ratio could remain flat at 2.8%, while in a severe stress scenario this number could worsen to 3.4%.

Overall, the sustained reduction in the gross NPA ratio since March 2020 has been primarily due to a persistent fall in new NPA accretions and increased write-offs, the RBI said.

Though the amount of write-offs declined during the year, the write-off ratio remained almost at the same level as a year ago, due to reduction in gross NPA stock.

According to the central bank's assessment, write-offs fell in fiscal 2024 compared to previous years, however as a ratio of gross NPA it remains high. This is because the total stock of bad loans has come down.

Among major sectors, the impairment ratio in agriculture remained the highest but it has recorded persistent improvement during the second half of full year ended March 2024. The gross NPA ratio in all categories of personal loans reduced across bank groups.

Within the industrial sector, asset quality improved across all major sub-sectors barring the vehicles and transport equipment sector.

Looking at upcoming stress, the special mention account category loans fell across lenders in March 2024. This indicates that loans which are in stress, but not yet NPA have come down.