The Reserve Bank of India (RBI) on Wednesday forecast that the bad loan ratio of banks could decline further to 3.6 per cent in March 2024 from a decadal low in March 2023 if the positive macroeconomic conditions continue.

According to the RBI’s Financial Stability Report (FSR), a bi-annual publication, the net non-performing assets (NNPA) ratio of commercial banks also improved to 1 per cent in 2023, a level last seen in June 2011 showing active and deep provisioning.

The gross non-performing assets (GNPA) ratio had fallen to 3.9 per cent in March 2023, a 10-year low. It has now forecast that the GNPA ratio could improve to 3.6 per cent under the baseline scenario.

Stress tests conducted by the RBI, however, showed that if the macroeconomic environment worsened to a medium or severe stress scenario, the GNPA ratio may rise to 4.1 per cent and 5.1 per cent, respectively, in March 2024.

The central bank added that the improvement in banks’ asset quality has been broad-based, with a steady decline in the stressed advances ratio across all major sectors. It pointed out that while there has been an improvement in the asset quality of personal loans, impairments in the credit card receivables segment have risen marginally.

However, within the industrial sector, the asset quality continued to improve across sub-sectors. Moreover, the share of large borrowers in gross advances of banks declined over the past three years from 51.1 per cent in March 2020 to 46.4 per cent in March 2023 as retail loans grew faster than borrowings by corporate houses.

The share of large borrowers in the gross NPAs of commercial banks also declined from 75.7 per cent in March 2020 to 53.9 per cent in March 2023.