Synopsis
With improving asset quality, the SCB GNPA ratio is projected to improve from the expected 2.5%-2.7% in FY24 to 2.1%-2.4% by FY25 end. At these levels, GNPA figures would have reached the long-term levels prior to the pre-AQR levels. Additionally, credit costs are estimated to remain benign. However, downside risks include any material weakening of asset quality due to elevated interest rates, impact of regulatory changes, a tighter liquidity environment and global issues.
Asset Quality has been on a Continuously Improving Trajectory across Multiple Metrics Post the asset quality review (AQR) in 2015-2016 which pushed banks to recognise NPAs and reduce unnecessary restructuring, banks witnessed a surge in GNPAs from 3.8% in FY14 to 11.2% in FY18 (and NNPAs from 2.1% in FY14 to 5.6% in FY18) largely due to weakness in the wholesale advances which required banks to make a significant amount of provisioning and write-offs over the next four to five years.
