Page 45 - Banking Finance November 2024

ARTICLE

Note: CV stands for Coefficient of Variation, while CAGR
represents Compound Annual Growth Rate.

Source: Operational Statistics Collected and Tabulated
based on the data retrieved from (RBI), Report on
Trend and Progress of Banking in India, 2022-
23, Mumbai, and the calculations made based on these
details.

It is evident of the table that the amount of Gross Non-
Performing Assets (NPAs) and the Gross NPA Ratio of
Scheduled Commercial Banks (SCBs) over a period of
years from 2005 to 2023 (19 years). However, the
amount of GNPAs have shown a general increasing trend
cline in NPAs and NPA ratio post-2018 suggests efforts
over the years, with fluctuations and significant spikes in by banks to address NPAs, possibly through resolution
certain years. There is a noticeable acceleration in the
mechanisms like asset reconstruction, NPA recovery ini-
growth of NPAs starting from around 2015 until 2018,
tiatives, or stricter lending practices. The high variabil-
with a peak in 2018. After 2018, there's a decline in ity and skewness in NPAs indicate the impact of eco-
the absolute value of NPAs, indicating some level of
nomic cycles, regulatory changes, and bank-specific fac-
recovery or better management.
tors on asset quality. The CAGR indicates the pace at
which NPAs have been growing annually, emphasizing
Even the Gross NPA Ratio, which measures the propor-
the need for continuous monitoring and proactive mea-
tion of NPAs to total assets, also shows an increasing
sures by banks and regulators to manage asset quality
trend over the years. There's a more pronounced increase
risks effectively.
in the ratio from 2015 to 2018, reflecting a worsening
asset quality situation during that period. Subsequently,
Factors Responsible for increasing rate/
there's a decline in the ratio from 2018 onwards, indi-
level of NPAs
cating a relative improvement in asset quality.
As already mentioned, numerous factors contribute to the
Moving forward, the mean Gross NPAs over the period concerning magnitude and rate of NPAs in Scheduled
is ?410,894.83 crores, indicating the average level of Commercial Banks (SCBs). These causes differ consid-
NPAs. The standard deviation of ?363,532.45 crores erably among banks, borrowers, and even loan purposes.
suggests significant variability in NPAs across the years. The range of these factors emphasizes the intricate na-
The coefficient of variation (CV) of 88.47% indicates a ture of the NPA challenge, highlighting the need for a
high degree of variability relative to the mean. The skew- nuanced approach customized to tackle distinct issues
ness of 0.47 suggests a slight right-skewness in the dis- within the context of each bank and borrower. The macro-
tribution, indicating that there are more years with lower economic factors significantly contribute to the surge in
NPAs than higher NPAs. The Compound Annual Growth non-performing assets (NPAs).
Rate (CAGR) of 12.73% indicates the annualized rate
at which NPAs have been growing over the period. Economic slowdowns, fluctuating interest rates, and in-
flationary pressures strain borrowers' ability to repay
In the lines of above, the increasing trend in NPAs and loans. Additionally, currency depreciation and global
NPA ratio till around 2018 reflects challenges in asset economic instability impact industries reliant on exports,
quality management within the banking sector. The de- further straining loan repayment capacities. Structural

40 | 2024 | NOVEMBER | BANKING FINANCE