Indian Banks Achieve Record Low NPAs As Recoveries Surge: CareEdge Ratings
Bad loans of banks in India have reached record lows due to recoveries from defaulters and regularisation of payments many-fold, according to CareEdge Ratings. However, banks are anticipating some stress and are looking at building buffers. The bad loans decreased by 21 per cent to Rs 4.85 lakh crore in the last calendar year, from the previous year. The ratio of gross bad loans is expected to improve to 2.8 per cent in 2021 from 2.9 per cent in 2020. Write-offs stood at Rs 34,000 crore as compared to Rs 29,000 crore in the December quarter of the previous year.
Sanjay Agarwal, Senior Director at CareEdge Ratings, stated that "the gross non-performing assets ratio of banks has moved past the pre-asset quality review (AQR) levels in Q3FY24. This trend is expected to continue in FY24 due to several factors, including healthy growth in advances driven by an uptick in economic activities, and lower incremental slippages."
The Reserve Bank of India mandated an AQR a decade ago, which led to a surge in bad loans as banks were hiding defaults and classifying many stressed accounts as performing loans. Since then, banks have been reporting the actual position on defaults. Although bad loans are decreasing, high-interest rates and some regulatory actions by the Reserve Bank of India could lead to some defaults.
Therefore, banks are preparing for it by taking initial actions on creating additional provisions, which may be necessary over the next five to six years to meet the requirements of provisioning for expected credit loss.
