The gross non-performing assets (NPA) of Public Sector Undertaking (PSU) banks in India is expected to drop to 5% in March 2024 from 14.6% in March 2018. This news comes as a relief to the banking sector, which has been grappling with the problem of bad loans for several years.
Easing Pressure on NPA
The gross NPA of PSU banks has been on the decline for the past few years. As per the Reserve Bank of India’s (RBI) latest Financial Stability Report (FSR), the gross NPA of PSU banks declined to 5% in the first half of the current fiscal year, mainly due to lower slippages and higher recoveries. The RBI report also highlighted that the provision coverage ratio (PCR) of PSU banks improved to 75.9% from 68.9% in March’22, indicating the banks’ enhanced resilience to credit risk.
One of the significant factors driving the decline in Non Performing Assets is the economic rebound witnessed in recent times. According to a report by rating agency CRISIL, the NPA ratio of Indian banks is likely to drop to 5% by March 2024 due to the country’s economic recovery. The report states that the rebound is expected to boost credit demand, especially in retail and small and medium enterprises (SME) segments, which are less prone to NPA risks than corporate loans.
The improved NPA scenario can also be attributed to the government’s efforts to tackle the bad loan problem. In recent years, the government has taken several measures to address the issue of NPAs, such as the Insolvency and Bankruptcy Code (IBC) and Asset Quality Review (AQR). The IBC provides a time-bound resolution of insolvency cases, while the AQR enables banks to identify and classify stressed assets accurately.
The improvement in NPA ratio is a significant positive for the PSU banks as it would improve their profitability and asset quality. The banks would be able to utilize their funds more effectively, which would, in turn, help in boosting the country’s economic growth. It would also restore the confidence of investors and stakeholders in the banking sector.
However, despite the decline in NPA, the banking sector still faces challenges such as increasing competition from non-banking financial companies (NBFCs) and digital lenders. The NBFCs have been gaining ground in recent years due to their innovative and technology-driven approach towards lending. The digital lenders, on the other hand, have been able to leverage technology to reach out to underserved and unbanked segments of the population.
The decline in the gross NPA is a positive development for the banking sector. It is a result of several factors, such as the economic rebound, government measures to address the bad loan problem, and the improved PCR of banks. However, the sector still faces challenges, and banks need to continue to adopt innovative and technology-driven approaches to stay competitive. Nevertheless, the declining NPA ratio is expected to boost the overall health of the banking sector, contributing to the country’s economic growth.
