Gross NPA (non-performing assets) ratio of banks has declined sequentially to 5 per cent as of September 2022 from the peak levels of around 9 per cent in 2017-18, led by lower fresh slippages, strong recoveries and write-offs, according to the RBI.

“The reduction in NPAs was mainly contributed by written-off loans in the case of PSBs (public sector banks), while upgradation of loans was the primary driver for asset quality improvement for PVBs (private banks),” the central bank said in its report on Trend and Progress of Banking in India for 2021-2022.

Improving asset quality

Taking into account global operations, asset quality improved across the board for all bank groups, RBI said adding that lower gross bad loans combined with high provisions accumulated in recent years further contributed to a decline in the net NPAs. 

As of March 2022, gross NPAs were at 5.8 per cent, lower than 7.3 per cent in the year ago period. Over the same period, the net NPA ratio improved to 1.7 per cent from 2.4 per cent, RBI data showed.

The share of large borrowal accounts — those with a total exposure of  ₹5 crore and above — comprised 47.8 per cent of the total advances in 2021-22 compared with 48.4 per cent in 2020-21. Correspondingly, their share in total NPAs also declined to 63.4 per cent from 66.4 per cent.

Temporary stresses

On the other hand, the share of special mention accounts-0 (SMA-0) — loans that are overdue for 0-30 days —shot up for both PSU and private banks as of March 2022, reflecting temporary stress among borrowers, RBI said.

The share of restructured standard advances to gross loans also increased by 110 bps for all borrowers and 50 bps for large borrowers. This was lower than the increase of 30 bps for all borrowers and 40 bps for large borrowers in 2020-21, owing to the RBI’s resolution framework for restructuring of stressed retail loans and MSME loans during the pandemic.

However, the share of SMA-1 and SMA-2 loans, which indicate impending stress for longer time buckets declined to their lowest levels since March 2016 for all account, the report said.