Gross NPA ratio falls in FY19 for first time in seven years

After rising for seven years in a row, the gross non-performing asset (GNPA) ratio of banks declined in the financial year 2018-19 as recognition of bad loans neared completion, said the Reserve Bank of India’s (RBI) report on Trend and Progress in Banking in India 2018-19. However, this trend has seen a reversal in the first half of FY20 as the year has seen several defaults, some of which were not expected as in the case of some non-banking financial institutions.

The report says that stress in large borrower accounts has been on the rise for both private banks and public sector banks (PSBs) in the first half of 2019-20.

The central bank’s supervisory data shows that the GNPA ratio of banks remained stable at 9.1% at end-September 2019. All bank groups recorded an improvement in asset quality, with PSBs experiencing a drop both in the GNPA and in the net NPA ratios. The deteriorating asset quality of private banks in terms of the GNPA ratio is due to the reclassification of IDBI Bank as a private bank effective January 21, 2019. However, after excluding IDBI Bank, the GNPA ratio of private sector banks declined.

The gross non-performing assets (GNPAs) ratio improved as the slippage ratio as well as outstanding GNPAs declined during the period of review. “While a part of the write-offs was due to ageing of the loans, recovery efforts received a boost from the bankruptcy laws,” the RBI said, adding that the restructured standard advances to gross advances ratio began declining after the asset quality review (AQR) in 2015 and reached 0.55% by end-March 2019.

Consistent with the trend of improving asset quality, the proportion of standard assets in total advances of banks rose in 2018-19, largely due to the improved performance of PSBs. The corresponding improvement in sub-standard and doubtful assets was partly reversed by an increase in the loss account.

Bad loans in the larger borrowal accounts (exposure of Rs 5 crore or more) had contributed 91% of total gross NPAs (GNPAs) in 2017-18 after the RBI withdrew then-existing restructuring schemes. In 2018-19, however, banks recorded a synchronised decline in all the special mention account (SMA) categories of SMA-0, SMA-1 and SMA2, restructured standard advances (RSA) and GNPAs, attesting to a broad-based improvement in asset quality. Yet, these large accounts — which constituted only 53% of gross loans and advances —contributed 82% of GNPAs at end-March 2019.