‘Asset quality at 10-yr high, but bank profits may ebb’ – Times of India

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MUMBAI: The asset quality of Indian banks is at a decadal high, but as deposit rates catch up with lending rate increases, profitability could moderate in FY24, RBI said in a report. The central bank also expressed concern over the dependence of finance companies on banks for funding.
In its annual publication, ‘Report on Trend and Progress of Banking in India 2022-23’, RBI said that the gross non-performing assets of banks fell to a decadal low of 3.9% as of March-end 2023 and further to 3.2% at the end of September this year.
“The Indian banking system is well positioned to improve further, with better asset quality, high capital adequacy and robust profitability. The financial indicators of NBFCs are also set to strengthen further,” the report said. It attributed 45% of the improvement in the ratio of NPAs to recoveries and upgradations.
The RBI report said the consolidated balance sheet of banks grew by 12.2% in 2022-23 — the highest in nine years. The share of PSBs in the consolidated balance sheet of banks declined from 58.6% at the end of March 2022 to 57.6% at the end of March 2023, while private banks gained a share from 34% to 34.7%. At the end of March 2023, PSBs accounted for 61.4% of total deposits and 57.9% of total advances.
“With inflation remaining above target, monetary policy could stay in restrictive territory for longer,” the report said. On the growing dependence of NBFCs on banks for finance, the report said, “Given the increasing interconnectedness between banks and NBFCs, the latter should focus on broad-basing their funding sources and reduce overdependence on bank funding. Banks and non-banks both need to bring in greater empathy in their customer services.”
“The share of unsecured advances in total advances has increased. In this context, RBI targeted macroprudential measures of November 2023 are aimed at ensuring sustained financial stability while supporting growth,” the report said.
The central bank has also raised concerns over banks’ lending to borrowers who can influence the lender’s decision as it involves moral hazard issues leading to compromise in pricing and credit management.



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