Bad loans at Indian banks is down to a six-year low, says RBI report

The gross non-performing asset (GNPA) ratio of banks has fallen to a six-year low of 5.9 percent in March 2022 from 7.4 percent in March 2021, according to the latest Financial Stability Report (FSR) released by the Reserve Bank of India (RBI) on June 30.

Stress tests indicate that the GNPA ratio of commercial banks may further improve from 5.9 percent in March 2022 to 5.3 percent by March 2023 driven by higher-than-expected bank credit growth and a declining trend in the stock of GNPAs, among other factors, the report stated.

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This scenario, however, was assuming no further regulatory reliefs would happen till then and was calculated without taking the potential impact of stressed asset purchases by National Assets Reconstruction Company Ltd (NARCL) into account.

GNPAs do not mean an actual loss for lenders as the provision for unpaid debts has not been deducted to calculate net NPAs. (Source: RBI FSR)

The FSR states that if the macroeconomic environment worsens to a medium or severe stress scenario, the GNPA ratio might rise to 6.2 percent and 8.3 percent, respectively.

The latest report stated that within the bank group level, too, the GNPA ratios might shrink by March 2023 in the baseline scenario.

In the severe stress scenario, however, the GNPA ratios of public sector banks may increase from 7.6 percent in March 2022 to 10.5 percent a year later, whereas it would go up from 3.7 percent to 5.7 percent for private sector banks and 2.8 percent to 4.0 percent for foreign banks over the same period.

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The FSR is published biannually.