The credit growth of all banks slowed down to 8.1 per cent in 2016-17 from 10.9 per cent in the previous year, though the aggregate deposits improved on account of the massive flow of funds after demonetisation, a Dun and Bradstreet report said on Saturday.

“The credit growth of all scheduled commercial banks slowed down from 10.9 per cent in 2015-16 to 8.1 per cent in 2016-17. The growth in aggregate deposits, on the other hand, improved from 9.3 per cent in 2015-16 to 15.9 per cent in 2016-17, largely on account of a massive flow of funds into the banking system after the demonetisation of November 2016,” the report titled ‘India’s Top Banks 2017′ noted.

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It said that the banks’ non-performing assets (NPAs) continued to display the highest level of stressed advances.

“The gross non-performing advances (GNPA) of banks rose to 9.6 per cent in March 2017 from 7.5 per cent in March 2016. The net NPA ratio of banks stood at 5.5 per cent in March 2017,” the report said.

“At present, the Indian banking sector is going through a critical phase. The credit growth has remained subdued, particularly in the case of public sector banks. Increase in stressed assets has affected the profitability of banks and therefore, deteriorating asset quality means a major challenge for the banking industry,” Manish Sinha, Managing Director- India, Dun and Bradstreet said.

The Indian banking sector has lately grappled with various challenges, including degradation in asset quality and a sharp slowdown in credit off taking.

The report highlights that an improvement in India’s macroeconomic fundamentals, the underlying potential in terms of a largely under-banked population and the digital push by the government can be leveraged to help the sector turn the tide in the coming years.

In 2016-17, the aggregate total income of the 68 profiled banks stood at Rs 11.5 trillion, reflecting a 6.7 per cent growth. The total income of private sector banks grew by a healthy 15.8 per cent during the year, as against a modest growth in public sector banks (3 per cent) and foreign banks (5.8 per cent), it said.

“The aggregate value of Net Interest Income (NII) of profiled banks rose by 6.4 per cent to Rs 3,284.8 billion. Private banks reported a 15.7 per cent growth in NII, as against a flat performance by public and foreign banks,” the report stated.

In 2016-17, the aggregate net profit of the profiled banks grew by a whopping 72.6 per cent to Rs 562.9 billion.

The report highlights the opportunities and challenges the banking sector faces as well as analyses the financial performance of 68 scheduled commercial banks.