Banking sector's Gross NPAs expected to reach 2.1% by FY25: Report

Banks's GNPA: A recent report by domestic rating agency Care Ratings indicates that the gross non-performing assets (GNPAs) of banks are poised to further improve, potentially reaching up to 2.1 per cent by the end of the financial year 2024-25. This projection follows an expected range of 2.5-2.7 per cent for GNPAs in FY24, showcasing a positive trend in asset quality.

The report underscores the impact of the Reserve Bank of India's (RBI) efforts, which initiated a comprehensive exercise in the mid-2010s, directing banks to accurately classify stressed assets as NPAs. This move aimed to provide a more transparent representation of banks' balance sheets.

Risks to estimates

Despite the optimistic outlook, the report highlights several downside risks that could impact these estimates. These risks include a significant deterioration in asset quality due to elevated interest rates, regulatory changes, a tighter liquidity environment, and global economic issues.

Since FY19, GNPAs have been on a downward trajectory, reaching a decade-low of 3.9 per cent in FY23 and remaining at 3 per cent in the December quarter of FY24. This improvement has been attributed to recoveries, increased write-offs by banks, and reduced instances of new NPAs.

Sector-wise, the report notes a positive trend in asset quality across various sectors. The agriculture sector's GNPA ratio reduced to 7 per cent in September 2023 from 10.1 per cent in March 2020, while the industrial sector reported a 4.2 per cent GNPA ratio in September 2023 compared to 14.1 per cent in March 2020.

Retail loan GNPA stood at 1.3 per cent in September 2023, down from 2 per cent in March 2020, primarily driven by improvements in unsecured loans and education loans. However, the report highlights the need for continued monitoring of unsecured personal loans and restructured accounts.

(With PTI inputs)