Statsguru: Six charts explain banking sector revival amid rising rates

According to the latest Financial Stability Report of the Reserve Bank of India, the gross non-performing assets (GNPAs) for scheduled commercial banks (SCBs) declined to 5 per cent in September 2022. In March 2021, the GNPAs for SCBs were at 7.5 per cent of the total outstanding loans. The decline in GNPAs has been slower for non-banking financial companies (NBFCs), as the ratio of bad assets declined from 6.4 per cent to 5.9 per cent during this period (chart 1). 

For other banking entities, the GNPAs are still higher. Urban co-operative banks (UCBs) had a GNPA ratio of 12.7, whereas regional rural banks’ (RRBs) ratio was 9.1 per cent (chart 2). The decline in GNPAs and lower provisioning have helped credit growth. Rising interest rates have had little effect on credit growth. For the quarter ending September 2022, SCBs’ credit had expanded 17.5 per cent compared to last year. Credit growth for NBFCs was 13.3 per cent during this period, while for UCBs it was just 3.3 per cent (chart 3). Although deposit growth has not kept pace with credit growth, it was still higher for SCBs than other entities. Until September 2022, deposits at SCBs had expanded by 9.8 per cent compared to last year, whereas the increase was 7.8 per cent for NBFCs. 

At the UCBs, there was a 0.6 per cent contraction in deposits (chart 4). The latest Trend and Progress of Banking in India report highlighted that the performance of the banking sector had improved drastically over the last five years. From a Rs 32,000 crore net loss in 2017-18, the banking sector recorded a rise to Rs 1.82 trillion in net profits in 2021-22 (chart 5). The profits are expected to surge further, as the second quarter results showed a 50 per cent increase in net profits across scheduled commercial banks. Not just SCBs, the RRBs also seem to have performed better. RBI data shows that 79.1 per cent of the 43 RRBs were profit-earning in 2021-22. Less than 60 per cent of the RRBs made a profit in 2019-20 (chart 6).