Asset Quality of Banks Improves as NPA Ratio Drops to 2.67% in June 2024

The Finance Ministry on Saturday reported a notable reduction in the gross non-performing assets (NPA) ratio for scheduled commercial banks (SCBs), which fell to 2.67% in June 2024 from 11.18% in March 2018.

This decline reflects a substantial improvement in the asset quality of these banks. The provisional coverage ratio (PCR), an indicator of a bank’s ability to cover bad debt losses, has also increased from 49.31% in March 2015 to a robust 92.52% in June 2024.

An NPA is defined as a loan where the borrower has not made interest or principal payments for at least 90 days, resulting in the loan being classified as non-performing. Meanwhile, PCR represents the percentage of funds a bank sets aside to cover potential losses from bad loans.

The Ministry also highlighted the performance of public sector banks (PSBs), whose gross NPA ratio dropped to 3.32% in June 2024, a significant improvement from 4.97% in March 2015 and a peak of 14.58% in March 2018.

In terms of profitability, SCBs recorded their highest-ever aggregate net profit of Rs 3.50 lakh crore for the financial year 2023-24, up from Rs 2.63 lakh crore in FY 2022-23. PSBs also achieved a record net profit of Rs 1.41 lakh crore in 2023-24, compared to Rs 1.05 lakh crore the previous year, with Rs 0.86 lakh crore profit recorded in the first half of 2024-25.

Additionally, the government has provided proactive support to the banking sector, focusing on business needs and employee welfare to maintain stability, transparency, and growth. Over the past decade, the government has implemented several reformative initiatives aimed at strengthening the sector.

The Reserve Bank of India (RBI) initiated the Asset Quality Review (AQR) in 2015 to address stress in the banking system, which led to the transparent recognition of NPAs and the withdrawal of special treatment for restructured loans. As a result, NPAs peaked in 2018, reflecting the banking system's efforts to deal with distressed loans.

Furthermore, the number of bank branches has increased from 117,990 in March 2014 to 160,501 in September 2024, with 100,686 of these branches located in rural and semi-urban areas.