Banks report lowest bad loan provisioning in Q4 since the pandemic amid improving asset quality

The loan loss provisioning for banks in the March quarter continued to fall for the fifth consecutive period amid sustained collection efficiency and improving asset quality. For a sample of 29 banks, cumulative bad loan provisioning fell by 42.5% year-on-year to Rs 18,354.4 crore, the lowest since at least March 2019 quarter. The rate of decline was the highest since the March 2022 quarter when the provisioning had dropped by 51.6%.

The overall asset quality in the banking system has been improving gradually. The CareEdge Debt Quality Index (CDQI), which captures the health of credit markets, has shown sequential improvement in each of the eight months to March 2023. The CDQI increased to 93.5 in March 2023 from 89.8 two years ago.

Of the total sample, 20 banks or two out of every three banks showed lower year-on-year provisioning compared with 25 banks in the year-ago quarter. The tally was lower in the March 2023 quarter due to higher year-on-year provisioning by a few private sector banks.

For the private sector banks in the sample, loan loss provisioning fell by 59.4% year-on-year to Rs 3,097 crore or 16.9% of the sample’s total bad loan provisioning. For public sector banks (PSBs), it dropped by 37.3% to Rs 15,257.4 crore.

The total sample’s net interest income (NII) grew in double digits year-on-year for the fifth consecutive quarter following a sustained credit offtake. It rose by 28.9% in the March 2023 quarter to Rs 1.8 lakh crore. The share of PSBs in the sample’s NII improved to 55.5% from 52.8% in the previous quarter.

“Credit offtake has remained robust even amid the significant rise in interest rates, and global uncertainties related to geo-political, and supply chain issues,” noted CARE Ratings in a recent report. Personal Loans and NBFCs have been the key growth drivers.