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28-12-2024
Bureau Report + Agencies
NEW DELHI/ MUMBAI: Indian banks’ financial position has stayed robust, marked by the sustained expansion in loans and deposits, while their gross bad loan ratio has dropped to multi-year lows, a central bank report showed on Thursday.
Banks’ gross non-performing assets ratio (NPA), or the proportion of bad assets to total loans, slipped to an over-13-year low of 2.5% at end of September from 2.7% at end-March, the Reserve Bank of India (RBI) said in its ‘Trend and Progress of Banking’ report.
Net bad loans of banks fell to 0.57% of total loans at September-end, from 0.62% at end-March, driven by stronger loan-loss buffers, the RBI report said.
The asset quality of non-bank finance companies (NBFCs) also improved further in 2023-24 amid a sustained double-digit balance sheet growth, the central bank said.
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 non-banking finance companies to borrow from banks and imposed restrictions on non-compliant lenders.
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, the RBI report said.
Going forward, banks need to strengthen their risk management and IT governance standards, and focus on checking unscrupulous activities, including suspicious and unusual transactions, the RBI said.
Meanwhile, 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.
Earlier, in last month India’s central bank Governor Shaktikanta Das on Wednesday cautioned the country’s lenders against “all forms of exuberance” days after tightening rules for consumer loans.
While credit growth is accelerating, banks and non-bank finance companies (NBFCs) need to ensure lending to individual categories is “sustainable”, Das said at an event in Mumbai.
“All forms of exuberance must be avoided.”
Last week, the Reserve Bank of India (RBI) asked banks to set aside more capital against personal loans and lending via NBFCs on concerns that soaring demand for small-ticket consumer credit could lead to a build-up of risk.
The tightening of lending norms is expected to push up borrowing costs and dent consumer loan growth, which has been rising at nearly double the pace of overall bank credit.
“These measures are pre-emptive in nature; they are calibrated and targeted,” Das said on Wednesday.
There is a certain amount of exuberance visible in the pricing of loans in some categories, said P.R. Seshadri, managing director and CEO of South Indian Bank.
“This is a little alarming. We need to be paid for the risk that we are taking,” he said, without elaborating on the loan segments where such concerns have emerged.
Right now, the (credit) environment looks relatively risk free, but that may not always be the case, KVS Manian, whole-time director at Kotak Mahindra Bank, said.
