Banks’ asset quality to soon be better than 2015 levels

Indian banks' asset quality improved over the last couple of years and is soon expected to be better than what it was in 2015 before the beginning of the massive cleansing of balance sheets under regulatory guidance, analysts said.

Following the AQR exercise, banks' gross NPA ratio jumped to 11.5% at the end of March 2016 with the public sector banking group leading the stress at 14.5%, data from RBI showed. The banking sector gross NPA was at 3.5% before AQR.

CareEdge expects gross NPA ratio of scheduled commercial banks to reduce in FY24 due to lower incremental slippages, a reduction in special mention accounts and restructuring portfolios, and healthy growth in advances.

"A decline in the overall stressed assets (GNPA plus restructured assets) due to a reduction in GNPAs on account of resolution and/or write-offs and improvement in restructured assets with control on asset slippages is expected to continue," it said.

Fitch estimated that sound economic momentum contributed to a fall in credit costs to 0.95% in the nine months of FY23, as compared with 1.26% at FY22. "Lower credit costs were the primary factor driving an improvement in return on assets to 1.1% in 9MFY23, outpacing Fitch's FY23 estimate of 0.9%, although earnings also benefited from higher-than-expected loan growth and improving net interest margins," it said.