Banks' financial health improves as non-performing assets decline to Rs 4.05 lakh crore: CareEdge Ratings

According to the report, the Gross Non-Performing Asset (GNPA) ratio of Scheduled Commercial Banks (SCBs) improved to 2.1 per cent as of Q2FY26.

It stated "Gross Non-Performing Asset (GNPA) ratio of Scheduled Commercial Banks (SCBs) improved to 2.1 per cent as of Q2FY26 (from 2.6 per cent a year earlier), with GNPA declining 11.1 per cent year-on-year (y-o-y) to Rs 4.05 lakh crore".

The rating agency noted that strong recoveries, healthy upgrades, lower incremental slippages, and continued portfolio clean-up through write-offs and sales to Asset Reconstruction Companies (ARCs) contributed to the improvement in asset quality.

In contrast, the Net Non-Performing Asset (NNPA) ratio remained stable at 0.5 per cent for the third consecutive quarter, compared to 0.6 per cent in Q2FY25, supported by a 9.9 per cent y-o-y decline in NNPAs to Rs 0.88 lakh crore.

Sequentially, SCBs' GNPAs and NNPAs recorded a decline of 4.2 per cent and 5.1 per cent quarter-on-quarter (q-o-q), respectively.

This was driven primarily by lower incremental slippages, recoveries, upgrades, and an uptick in NPA resolutions through ARC sales, indicating a sustained improvement in asset quality across the system.

The report further highlighted that by Q2FY26, sectoral GNPAs as a percentage of total advances for public sector banks (PSBs) continued their downward trend across all segments, reflecting broad-based improvement.

This was supported by a significant reduction in fresh slippages, sustained write-offs, and the implementation of tighter underwriting norms, particularly in the retail lending segment.

On the growth front, credit offtake grew 11.7 per cent y-o-y, outpacing deposit growth at 9.7 per cent during the quarter. While a pickup in deposit mobilisation is expected in the second half of FY26, overall credit growth is projected to remain moderate.

Asset quality is likely to remain resilient, supported by contained slippages and ongoing recoveries, with the SCB GNPA ratio projected to stay within the 2.3-2.4 per cent range by end-FY26.

However, the report cautioned that stress in low-ticket unsecured personal loans and in the microfinance segment persists. It added that potential spillovers from U.S. tariff actions, global growth softness, and evolving domestic regulatory interventions could pose risks to both credit expansion and asset quality in the coming quarters. (ANI)