Banking News

Banks log 12.2% growth in FY23, gross bad loans down for 5th year: RBI report


MUMBAI: Indian banks grew at 12.2% last fiscal year driven by loans to retail consumers and services sectors, but the banks’ service to customers has not kept pace and they need to go beyond just monitoring the turnaround time, the Reserve Bank of India said in an annual report.

The regulator said that it is reviewing the non-fund based facilities offered by banks such as guarantees and letters of credit to come up with guidelines as they form an important role in the growth and development of the economy.

Banking industry’s clean up continued for the fifth straight year as the fall in gross bad loans helped report a higher net interest margin, a key measure of profitability. All banks meet the regulatory capital requirements with it at 16.8% as of September.

“Lower slippages helped improve asset quality across all bank groups, with gross bad loans to total advances ratio of banks dropping to a 10-year low,” the RBI said in its annual Report on Trend and Progress of Banking in India. “Higher lending rates and lower provisioning requirements helped to improve the profitability of banks and shored up their capital positions.”

Banks Log 12.2% Growth in FY23, Gross Bad Loans Down for 5th Year

Indian banks are having their best run in more than a decade after getting hobbled by bad loans when they unmindfully went into infrastructure funding compromising on the asset-liability management. The government had to come up with a fresh bankruptcy law and banks had to raise lakhs of crores of rupees in capital to survive the wave of defaults.The situation has since improved. Banks’ gross bad loans have fallen to 3.2 percent of advances from double digits. The growth in loans now is driven more by retail loans which has led to the central bank coming up with prudential measures. It recently raised capital requirements for certain unsecured loans to slow its growth. But it was more a precaution than due to worries.”The asset quality of the unsecured retail loans has not shown any deterioration so far,” the report said. “The calibrated and targeted macro-prudential measures announced in November 2023 in respect of select categories of consumer credit loans and bank lending to NBFCs are pre-emptive in nature and in the interest of financial stability.”While it is raising the prudential measures, it also wants banks to keep the interests of customers in mind and use technology to serve them better than just improving their profitability.

“The efforts of banks to provide timely solutions to customer grievances have not kept pace with the explosion in technology and products,” the report said. “Bank Boards and top executives need to focus on quality of grievance redressal instead of just monitoring turnaround time (TAT) and management information systems (MIS) on complaints. REs need to bring in greater empathy into their services, products and operations.”

The central bank which is on a mission to avert any mishaps is looking at the non-fund based activities of banks for regulation as leaving it unattended could lead to risk build ups.

“Non-fund based (NFB) facilities like guarantees, letters of credit, and co-acceptances play a significant role in facilitating domestic and international trade,” said the report.


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