Syllabus: GS-III
Subject: Indian Economy
Topic: Issues Relating to Planning, Mobilization of Resources
Context: Write-offs, recoveries contributed to reduction in NPAs: RBI data
Highlights of the Report:
- Positive trends in GNPA reduction are attributed to write-offs, recoveries, and improved industrial sector asset quality.
- Agricultural sector has the highest GNPA ratio, while retail loans have the lowest.
- Industrial sector’s GNPA ratio improved to 4.2% by September 2023.
- Slippage ratio (new NPAs as a share of standard advances) moderated in 2022-23 and H1 FY24.
- SCBs’ consolidated balance sheet expanded by 12.2% in 2022-23, driven by credit to retail and services.
- Gross bank credit accelerated at 15%, led by the personal loans and services sector.
 Concerns:
- Unsecured loans pose higher credit risk, comprising 25.5% of total credit as of March 2023.
- NBFCs recorded a 16.1% gross advances growth in 2022-23, primarily fueled by unsecured loans.
- Emphasis on robust governance and risk management to safeguard banking and payment systems from cyber threats.
Conclusion:
- High interconnectedness between banks and NBFCs necessitates attention to minimize contagion risk.
- NBFCs urged to diversify funding sources, reducing reliance on bank funding.
- Banks advised to regularly evaluate exposure to NBFCs and assess individual NBFCs’ exposure to multiple banks.
Background:
What are NPA’s?
- A NPA is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
- The RBI has defined NPAs as assets that stop generating income for banks.
- Banks are required to make their NPAs numbers public and to the RBI as well from time to time.
