RBI Banking Trends Report Points to Falling NPAs

The RBI Report on “Trends and Progress in Banking” for FY21, has some interesting observations on how the NPAs of the Indian banking sector have panned out. The year 2020-21 was significant in that it saw the Indian economy gradually emerge from the shadows of the COVID-19 pandemic and the lag effect.

For the scheduled commercial banks, the gross NPAs had stood at 8.2% as of March 2020. However, this level of gross NPAs had tapered to 7.3% in 2021, showing relief from stress of the pandemic. In addition, if you look at the more recent data of September 2021, the gross NPAs of scheduled commercial banks had fallen further to 6.9%.

The progress was not just on the gross NPA front but also on the capital adequacy front. For example, the capital adequacy of the SCBs which was at 14.8% in Mar-20 improved sharply to 16.3% in Mar-21 and further to 16.6% by Sep-21.

The lower dividend pay-outs as stipulated by RBI meant that banks had more retained earnings. This has one more positive implication that in the forthcoming budget, the outlays for recapitalization would either not be required or would be minimal.

During 2020-21, the improvement in the gross NPA ratio was largely driven by lower slippages due to asset classification standstill. However, a better provision coverage ratio also ensured that net NPAs of the banks fell from 2.8% overall in FY20 to 2.4% in FY21.

In terms of specific banking categories and their movement in NPAs, the table below captures the shift in gross NPAs year on year.