India's GNPA Anticipated To Decline Further, Experts Say

India's banking sector is witnessing a positive shift in its financial stability, as indicated by the latest Financial Stability Report. The report reveals that the gross non-performing assets (GNPA) of the country's scheduled commercial banks reached a 10-year low of 3.9 per cent in March 2023. Furthermore, experts predict that this trend is set to continue, with GNPA projected to decline further to 3.6 per cent by March 2024.

The significant reduction in gross NPA during the financial year 2022-23 can be attributed to several factors, including sizeable write-offs by banks. This development not only bolsters the confidence of financial institutions but also signals a positive outlook for the overall health and stability of India's banking system.

Jyoti Prakash Gadia, Managing Director, Resurgent India, pointed out, “The NPA levels in banks have shown a continuous declining trend on account of several factors in the recent past. These include the control of fresh slippages, timely support in the shape of deferment of installments during the pandemic era, better monitoring, sale of bad assets to AMCs, resolution through IBC, and cautious credit growth. The above factors are likely to continue in the current  financial year too based on which RBI has projected further reduction of gross NPA to 3.6 per cent by March 2024 in the base case scenario.”

Although there is pressure of stressed assets in the retail and MSME segment, due to the past interest rate hikes, the easing of the situation and likely reduction in interest rates towards the last quarters of the year is expected to reduce the pressure on NPAs, said Jyoti Prakash Gadia and added, “Further, better credit growth this year is also expected to increase the denominator base of aggregate advance, which will directly help in reduction of gross NPAs in percentage terms.”

Avinash Gorakshakar, Head of Research, Profitmart Securities, Mumbai, shared, “Indian banks’ GNPA falling to a record low of 3.9 per cent on March 2023 is a testimony of the fact that PSU banks have shown a string approach of reducing their legacy of bad assets and are now all set to grow on a healthy pace with strong growth expected on the Return on Assets (ROA) and Return on Equity (ROE) side.  Also, the government will not need to add any fresh capital here, which will conserve the government’s resources also. Banks in turn will have larger capital to fund growing businesses as credit growth continues to be strong in double digits.”