In its latest Financial Stability Report (FSR), the Reserve Bank of India highlighted a significant achievement in the Indian banking sector, with the gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) plunging to a multi-year low of 3.2% as of September 2023.
Despite the global economy grappling with slowing growth, burgeoning public debt, increasing economic fragmentation, and ongoing geopolitical conflicts, the Indian economy and its domestic financial system have shown remarkable resilience. This robustness is attributed to strong macroeconomic fundamentals, the financial health of institutions, moderating inflation, an improving external sector, and continued fiscal consolidation.
Alongside the notable decline in the GNPA ratio, the report sheds light on other key metrics of financial stability. The capital to risk-weighted assets ratio (CRAR) and the common equity tier 1 (CET1) ratio of SCBs were reported at 16.8% and 13.7%, respectively. Moreover, the net non-performing assets (NNPA) ratio also witnessed a decline, reaching 0.8%.
Macro stress tests for credit risk indicate that SCBs are likely to comply with the minimum capital requirements even under various stress scenarios. The resilience of the non-banking financial companies (NBFCs) has also improved, as evidenced by a CRAR of 27.6%, GNPA ratio of 4.6%, and a return on assets (RoA) of 2.9% as of September 2023.
