Non-performing assets (NPAs) or bad loans in the banking system fell to a 12-year low of 2.8 per cent in March even as stress tests conducted by the RBI showed that their capital levels will remain above the regulatory minimum even under severe stress scenarios, the central bank said on Thursday.

According to the RBI’s Financial Stability Report (FSR), a bi-annual document, the gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) fell to 2.8 per cent and the net non-performing assets (NNPA) ratio fell to 0.6 per cent at the end of March.

While there has been a sustained reduction in this ratio since March 2020, this has largely been due to a persistent fall in new NPA accretions and increased write-off. Here, the report said that though the amount of write-offs declined during 2023-24, the ratio (to GNPA) remained almost at the same level as a year ago.

The GNPA ratio of all SCBs may improve to 2.5 per cent by March 2025, the report noted.

It added that the better asset quality has helped SCBs to maintain strong capital buffers.

Their key capital ratios were well above the regulatory minimum in March.

“Macro stress test for credit risk, which should not be interpreted as forecasts and are based on scenarios and stringent conservative assessments under hypothetical shocks, demonstrate that SCBs have adequate capital buffers even under adverse stress scenarios,” the report added.

In his foreword, RBI governor Shaktikanta Das said the matrix of financial stability is at its best, but the real challenge is to maintain it and improve upon it further.

“The regulators, on their part, remain committed to these goals. We are focused on having in place an ecosystem that is adaptive and proactive in safeguarding the stability of the financial system,” he added.

According to Das, the Indian economy is exhibiting strength and resilience, with strong macroeconomic fundamentals and buffers.

Moreover, the economic activity is expanding at a steady pace, with the financial system being stronger and more vibrant than what it was before the onset of the recent period of crises.

“Our approach of balancing growth and stability, with willingness to take proactive and prudent actions to prevent accumulation of risks, is promoting long-term resilience and stability of the financial system,” he observed.