DECLINE
BAD LOANS: ECONOMY
NEWS: Banks’
gross NPA ratio declines to 13-year low of 2.5% at September end, says RBI
report
WHAT’S
IN THE NEWS?
The
gross non-performing assets (GNPA) ratio of scheduled commercial banks in India
dropped to 2.5% in September 2024, the lowest in over 13 years. However,
sectors like agriculture still have high GNPA ratios, and bad loans remain a
challenge despite improved financial health.
Key
Developments
- Strong Bank Performance:
In FY24, banks showed robust growth in credit and deposits.
- Improvement in GNPA Ratio:
- March 2010-11: GNPA was 2.35%.
- September 2024: GNPA improved to
2.5%, a 15.9% reduction from the previous year.
- Agriculture:
Highest GNPA at 6.2%.
- Retail Loans:
Lowest GNPA at 1.2%.
- Education Loans:
GNPA decreased to 2.7%, but still the highest within retail loans.
What
is GNPA?
- GNPA Ratio: Measures the proportion
of a bank's total loans that are non-performing.
- High GNPA Ratio:
Indicates risk of defaults and financial distress.
- Low GNPA Ratio:
Suggests better asset quality and financial health.
Reasons
for Bad Loans
- Poor credit assessments and economic
downturns.
- Over-leveraging by borrowers and
corporate mismanagement.
- Fraud, corruption, and weak
regulatory oversight.
Effects
of Bad Loans
- Economic slowdown, reduced credit
availability, and lower bank profitability.
- Decreased lending capacity and lower
investor confidence.
- Increased government fiscal burden
and potential job losses.
Government
Actions
- IBC (2016):
Facilitated faster resolution of distressed assets.
- Recapitalization:
Strengthened the balance sheets of public sector banks.
- ARCs:
Aimed at recovering bad loans.
- Bank Mergers:
Merged weak banks for greater stability.
- Loan Restructuring:
Allowed flexibility in repayments to prevent defaults.
Source: https://indianexpress.com/article/business/bad-loans-banks-gross-npa-ratio-low-end-september-rbi-report-9745690/