Despite the pandemic, asset quality in the banking sector has improved. The gross non-performing asset ratio (GNPA) for scheduled commercial banks (SCBs) decreased to 6.9% as at the end of September from 7.3% in March, and 8.2% in FY20, due to lower slippages, according to data released by the Reserve Bank of India (RBI) on Tuesday. In absolute terms, the gross bad loans of banks stood at Rs 8.37 lakh crore at the end of March, lower than Rs 8.99 lakh crore a year ago.
With the decline in delinquencies, the provisioning requirements of banks have also dropped and the net NPA ratio of both public and private sector lenders decreased to 3.1% and 1.4%, respectively, as per the RBI’s report on Trend and Progress of Banking in India 2020-21. However, foreign banks reported increasing accretions to NPAs and deteriorating asset quality due to the amalgamation of a troubled private bank with a foreign bank, RBI said. In November 2020, Lakshmi Vilas Bank was amalgamated with DBS Bank India. On an overall basis, the net NPA ratio decreased to 2.4% at the end of March from 2.8% a year ago.
The RBI noted that in-line with observations made since 2018, in 2020-21 too lenders predominantly wrote off bad loans to lower their gross bad loans. Public sector banks wrote off the highest amount of bad loans in FY21 at Rs 1.34 lakh crore, while private sector banks wrote off loans amounting to Rs 69,995 crore. The special mention accounts-2 (SMA-2) ratio, which signal impending stress, have risen across bank groups since the outbreak of the pandemic, RBI said.
On the capital side, the capital to risk-weighted assets ratio (CRAR) of SCBs improved sequentially every quarter from end-March 2020 to reach 16.6% at the end of September. The CRAR of banks stood at 16.3% in quarter ended March, and at 14.8% in the previous fiscal. The rise in the capital base of lenders is attributable to the rise in core capital across bank groups, higher retained earnings, recapitalisation of state-owned lenders and raising of capital from the market.
A slowdown in the accumulation of risk weighted assets (RWAs) of both private and public sector banks also helped boost lenders’ capital ratios, RBI said. The number of banks breaching the regulatory minimum requirement of CRAR, including capital conservation buffer at 10.875% declined to just one bank during 2020-21 from three in the previous year, the RBI said. “Though the implementation of the last tranche of 0.625% of capital conservation buffer (CCB) was deferred till October 1, 2021, banks proactively raised more capital to be in readiness for the imminent transition,” the central bank noted.