New Delhi, 03/01/2025: India’s banks have seen a significant improvement in their non-performing assets (NPAs) with the total amount dropping to Rs.4.8 lakh crore in March 2024. This is a big change from Rs.9.4 lakh crore in 2019, showing a steady decline in bad loans and better overall health in the banking system. This drop in NPAs is mainly due to two factors: fewer new bad loans being created and the process of writing off old bad loans.
This drop in NPAs is mainly due to two factors: fewer new bad loans being created and the process of writing off old bad loans. The latest report from the Reserve Bank of India (RBI) for 2023-24 shows that the NPA ratio for all commercial banks decreased to 2.7% by March 2024, down from 9.1% in 2019. The RBI’s early data also suggests the ratio had further dropped to 2.5% by September 2024. For public sector banks, the amount of bad loans fell from ₹7.4 lakh crore (11.6%) in 2018-19 to ₹3.4 lakh crore (3.5%) in 2023-24.
One of the key reasons for the NPA reduction has been loan write-offs. This is when banks remove bad loans from their balance sheets after setting aside enough funds, but still try to recover the money. In 2021-22, loan write-offs accounted for 48% of the total NPA reduction for all commercial banks, and by 2023-24, this share rose to 57%. For public sector banks, write-offs made up 65% of their NPA reduction in 2023-24, up from 56% in 2021-22.
Another reason for the NPA drop is that fewer new bad loans are being added. In 2018-19, banks added ₹3.14 lakh crore in new bad loans, which increased to ₹4.01 lakh crore in 2020-21 during the pandemic. Since then, this number has been falling, reaching ₹2.13 lakh crore in 2023-24. The slippage ratio, which shows the percentage of new bad loans, also improved from 4% in 2018-19 to 1.5% in 2023-24.
Public sector banks have been doing better than private banks in reducing bad loans. According to the RBI, private sector banks have had a higher slippage ratio for three years in a row, meaning they added more new bad loans than public sector banks.
Overall, the decline in NPAs is a positive sign for India’s banking sector. With fewer bad loans, banks are in a better position to help the economy grow. The steady decrease in bad loans shows that banks are improving their management of loans and are in a stronger position than they have been in over a decade.
