Indian banks’ gross non-performing assets fell to 5.8 percent, but the current macroeconomic environment may impact the health of lenders, the Reserve Bank said on Tuesday.

GNPAs, which peaked after the review of asset quality in fiscal 2018, have declined sequentially, hitting 5 percent in September, RBI said in the Trends and Progress of Banking in India report for fiscal 22, released on Tuesday.

The figure was 5.8 percent as of March 2022, according to the report, which also included a strong commitment from RBI not to be complacent given the current environment.

Also read – Indian banks’ consolidated balance sheet grows double-digits in FY22: RBI report

“Although the Indian banking sector currently remains resilient and resilient with improving asset quality and strong capital buffers, policymakers are keeping a close eye on dynamically evolving macroeconomic conditions that may impact the health of regulated entities,” the report reads.

The decrease in GNPAs is due to lower deviations and also a reduction in outstanding GNPAs through recoveries, upgrades and write-downs, the report said.

However, the asset restructured rate increased by 1.1 percentage points for all borrowers and by 0.5 percentage points for large borrowers, the report said, adding that efforts to help individuals and small businesses with the loan rewrite program were successful.

In what can be described as a divergent trend between government lenders and private lenders, the report said the decline in the holding of GNPAs was due to writedowns at public sector banks in FY22, while in the case of private banks it was the upgrade of Credit the main reason for improving asset quality.

Interestingly, all banking groups showed a decline in GNPAs, with the exception of foreign banks, where loss-making assets increased to 0.5 percent in FY22 from 0.2 percent in FY21.

Reliance on large borrowers for loans appears to be decreasing as retail banking surges, and accounts of over Rs 5 crore accounted for 47.8 per cent of outstanding loans in FY22, up from 48.4 per cent in FY21.

However, the contribution of such accounts to total unexploded ordnance wealth improved more significantly, to 63.4 percent of total NPAs in FY22 versus 66.4 percent in FY21.

An acceleration in revenues and a decrease in expenses have boosted SCBs’ profitability in 2021-22, as measured by return on equity and return on investments, the RBI said.

The consolidated balance sheet of scheduled commercial banks (SCBs) posted double-digit growth in 2021-22 after a seven-year gap, led by loan growth that accelerated to a 10-year high in the first half of FY23, it said.

Amid concerns about the high haircuts on bankruptcy decisions, RBI reiterated its request to compare the settlement value with the liquidation value of stressed assets.

As of late September 2022, the IBC’s recovery in cases where corporate bankruptcy resolution proceedings (CIRPs) were initiated by financial creditors (FCs) was nearly 201 percent of the liquidation value, it added.