There has been a significant improvement in asset quality of scheduled commercial banks (SCBs) during 2018-19 as gross NPA ratio declined to 9.3 per cent as on March 2019 against the peak of 11.5 per cent recorded in March 2018.

At the same time, there has been an improvement in provision coverage ratio (PCR) of SCBs to 60.9 per cent at end-March 2019 from 48.3 per cent at end-March 2018 and 44 per cent at end-March 2015, said Reserve Bank of India (RBI) Governor Shaktikanta Das at NIBM, Pune, on Saturday.

“The deterioration in asset quality of Indian banks, especially that of Public Sector Banks (PSBs), can be traced to the credit boom of 2006-11 when bank lending grew at an average rate of over 20 per cent. Other factors that contributed to the deterioration in asset quality were adverse macro-financial environment; lax credit appraisal and post-sanction monitoring standards; project delays and cost overruns; and the absence of a strong bankruptcy regime until May 2016,” elaborated Das.

The RBI set up a Central Repository of Information on Large Credits (CRILC) in 2014 which was followed by an Asset Quality Review (AQR) in 2015. As a result, the recognition of non-performing assets improved, leading to a sharp rise in the gross NPA ratio from 4.3 per cent at end-March 2015 to 7.5 per cent at end-March 2016. It further reached the peak of 11.5 per cent in March 2018.

“Recent supervisory data suggest that various efforts made by the Reserve Bank in strengthening its regulatory and supervisory framework and the resolution mechanism instituted through Insolvency and Bankruptcy Code (IBC) are bearing fruit. This is reflected in significant improvement in asset quality of SCBs during 2018-19 as gross NPA ratio declined to 9.3 per cent as on March 2019,” Das said.

With a view to eschewing the regulatory arbitrage between banks and non-banks, the Governor emphasised that the Reserve Bank has been aligning the regulatory and supervisory frameworks for NBFCs with that of SCBs.