The profitability of banks improved for the sixth consecutive year in 2023-24 and their gross bad debts or non-performing assets (NPAs) declined to a 13-year low of 2.7 per cent. According to a report released by the Reserve Bank of India (RBI) on Thursday, December 26, the financial position of Indian banks has stayed robust, marked by the sustained expansion in loans and deposits.
India’s macro fundamentals have boosted the performance and soundness of the banking and non-banking financial sectors. “Banks’ profitability rose for the sixth consecutive year in 2023-24 and continued to rise in H1:2024-25 with the return on assets (RoA) at 1.4 per cent and return on equity (RoE) at 14.6 per cent,” said RBI in its Report on Trend and Progress of Banking in India 2023-24.
RBI outlines performance of banks, NBFCs
Asset quality improved, with the gross non-performing assets (GNPA) ratio falling to its lowest in 13 years at 2.7 per cent at end-March 2024 and 2.5 per cent at end-September 2024. RBI said the capital position of banks remained satisfactory, as reflected in key parameters like leverage ratio and capital to risk weighted assets ratio (CRAR).
The net bad loans of banks fell to 0.57 per cent of total loans at September-end, from 0.62 per cent at end-March, driven by stronger loan-loss buffers. The asset quality of non-bank finance companies (NBFCs) also improved further in 2023-24 amid a sustained double-digit balance sheet growth, said the central bank.
Further, strong credit expansion by NBFCs was accompanied by further strengthening of their balance sheets, improvement in credit quality and profitability, and satisfactory capital buffers. The net profit of the scheduled commercial banks increased by 32.8 per cent to ₹3,49,603 crore during the last fiscal.
At end-March 2024, India’s commercial banking sector consisted of 12 public sector banks (PSBs), 21 private sector banks (PVBs), 45 foreign banks (FBs), 12 SFBs, six PBs, 43 RRBs, and two LABs. Out of these 141 commercial banks, 137 were classified as scheduled banks, while four were non-scheduled.
The RBI report said the consolidated balance sheet of the scheduled commercial banks, excluding RRBs, increased by 15.5 per cent during 2023-24, as compared with 12.2 per cent during 2022-23. The non-banking financial companies (NBFC) sector exhibited double digit credit growth, while its unsecured lending contracted and asset quality improved further. The GNPA ratio of NBFCs dropped to 3.4 per cent at end-September 2024; strong capital buffers kept the CRAR well above the stipulated norm at end-September 2024.
Outlook for banks, NBFCs
Over the past year, the RBI has warned the financial sector against “all forms of exuberance”, tightened rules for credit card and personal loans, made it more expensive for NBFCs to borrow from banks and imposed regulatory restrictions on the non-compliant lenders and financial institutions that serve customers.
Banks have also cleaned up their balance sheets in recent years by selling bad loans to asset reconstruction companies or by writing them off. Their capital and liquidity buffers stayed well above the regulatory needs while profitability improved for the sixth consecutive year in fiscal year 2023-24, said the RBI report.
Going forward, banks need to strengthen risk management and IT governance standards, and focus on checking unscrupulous activities, including suspicious and unusual transactions, said RBI. For NBFCs, an imprudent ‘growth at any cost’ approach would be counterproductive, the RBI said, highlighting the need for robust risk management frameworks. Non-bank lenders need to strengthen customer grievance practices and avoid recourse to usurious interest rates, it said.
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