The Asset Quality Review (AQR) initiated by the Reserve Bank of India (RBI) in 2015 revealed high incidence of non-performing assets (NPAs) in banks. This was stated by Union Minister of State for Finance Dr Bhagwat Kisanrao Karad in a written reply to a question in the Lok Sabha today.
Following the AQR results, the minister said, banks have started transparent recognition, reclassified standard restructured advances as NPAs and factored in expected losses on these advances. Primarily due to the transparent recognition of stressed advances as NPAs, the gross NPA ratio of Public Sector Banks (PSBs) increased from 5.0% in March 2015 to 14.6% in March 2018. The share of standard restructured advances gradually decreased from 7.0% to 0.8% during the same period. The increase in NPAs led to additional provisioning, which affected banks’ profitability, and a number of public service providers were placed under RBI’s prompt corrective action (PCA) framework. This had an adverse impact on PS’s business growth.
The minister said that the government has implemented a comprehensive strategy of 4Rs Transparent recognition of NPAs, Resolution and recovery, Recapitalization of PS and Reforms in the financial ecosystem. The major banking reforms undertaken by the government over the past eight years have dealt with credit discipline, responsible lending and better governance, in addition to adopting technology, merging banks and maintaining the general confidence of bankers.
As a result of the implementation of the reforms, the minister said that the performance of PSBs has improved significantly, which is reflected in the following:
- Asset quality improved significantly as PS’s gross NPA ratio declined from a high of 14.6% in March 2018 to 5.53% in December 2022.
- Resilience increased with the public service delivery coverage ratio rising from 46.0% to 89.9% in December 2022.
- PS’s capital adequacy ratio improved significantly from 11.5% in March 2015 to 14.5% in December 2022.
- All PSBs are in profit with a total profit of Rs. 66,543 crore in the financial year (FY) 2021-22 and the profit continued with PSBs earning a total profit of Rs. 70,167 crore for the first nine months of FY 2022-23.
- Banks that were earlier brought under Prompt Corrective Action (PCA) by the RBI have made a significant improvement, resulting in the removal of each of them from PCA restrictions.
- The total market capitalization of PSBs (excluding IDBI Bank, which was classified as a private sector bank in January 2019) increased from Rs. 4.52 lakh crore in March 2018 to Rs. 10.63 lakh crore in December 2022.
