Indian Banks Achieve Record Low Net NPA Ratio as Asset Quality Hits New Highs

Indian Banks Achieve Record Low Net NPA Ratio as Asset Quality Hits New Highs

Indian banks have achieved a historic low in their net non-performing assets (NPA) ratio, reflecting the sector’s improving asset quality. According to a study by CARE Ratings, the net NPA ratio declined to 0.6% as of June 2024, down from 1% a year ago. This reduction marks a significant improvement in bank balance sheets, driven by a 15.2% fall in gross non-performing loans, which now stand at ₹4.57 lakh crore, compared to ₹5.66 lakh crore in June 2023.

Several factors contributed to this achievement, including fewer new defaults, strong recoveries, and extensive write-offs, alongside robust credit growth, which saw an 18.1% year-on-year increase. Indian banks have also benefitted from government initiatives like the Production Linked Incentive (PLI) scheme, which has strengthened lending and sector profitability. The sector is currently experiencing its highest return on assets (RoA) and return on equity (RoE) in over a decade.

Despite these positive trends, the sector faces potential risks such as rising crude oil prices and evolving regulatory norms that may influence future credit costs. However, the ongoing reduction in bad loans and stringent regulatory oversight, particularly through RBI's earlier Asset Quality Review (AQR) program, has fortified banks against these challenge