Indian Banks' Bad Loans Hit Multi-Year Low, Economy Stays Strong Amid Global Headwinds

The Indian economy and the financial system remain robust and resilient, anchored by macroeconomic and financial stability, the Reserve Bank of India (RBI) said in the 29th issue of the Financial Stability Report (FSR) which was released today (27 June).

With improved balance sheets, banks and financial institutions are supporting economic activity through sustained credit expansion, it said.

According to the FSR, scheduled commercial banks (SCBs) have been boosted by rising profitability and declining non-performing assets.

For SCBs, gross non-performing assets (GNPA) ratio and the net non-performing assets (NNPA) ratios fell to multi-year lows of 2.8 per cent and 0.6 per cent, at the end of March 2024 respectively.

This has helped SCBs to maintain strong capital buffers: their capital to risk-weighted assets ratio (CRAR) and the common equity tier 1 (CET1) ratio at 16.8 per cent and 13.9 per cent, respectively, stood well above the regulatory minimum in March 2024, the FSR said.

Non-banking financial companies (NBFCs) remain healthy, with CRAR at 26.6 per cent, GNPA ratio at 4 per cent and return on assets (RoA) at 3.3 per cent, respectively, at end-March 2024,it further said.

Gross non-performing assets are bad loans that borrowers are currently unable to repay. A loan becomes an NPA if it is overdue for more than 90 days.

Banks must set aside (or provision) a portion of their profits as a buffer for potential losses from NPAs, which reduces the capital available for new loans.

As per the FSR, the global economy is facing heightened risks from prolonged geopolitical tensions, elevated public debt, and the slow progress in the last mile of disinflation.

Despite these challenges, the global financial system has remained resilient, and financial conditions stable.