The bad loan scenario in Indian banks has improved as the net non-performing loans (NPL) are at a six-year-low.

According to a report by Kotak Institutional Equities, net NPLs for banks are now closer to FY2014 levels.

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“Impairment ratios showed further improvement with gross NPLs declining 40 bps qoq to 6.7 per cent (30 bps decline qoq to 8.5 per cent for public banks and 40 bps decline qoq to 3.9 per cent for private banks). Net NPLs declined 36 per cent yoy and 15 per cent qoq to 2 per cent of loans with most of the decline seen for public banks,” it said.

It further said that the improvement is less relevant in the context of the Supreme Court ruling, which has prevented banks from recognizing fresh bad loans leading to negligible slippages while there was improvement in recovery and higher write-offs.

It said that banks under its coverage delivered 75 per cent yoy earnings growth with modest revenue growth (7 per cent yoy) but aided by flat provisions. Revenue growth had tailwinds from decline in cost of funds (NII up 16 per cent yoy).

“Sequentially, we saw a sharp recovery in business activity reflected by better fee income trends and reversal in operating expenses. Unlike the previous few quarters, Covid provisions were restricted to a few banks,” the report said.

It also said that NBFCs surprised with better-than-expected core earnings reflecting an unprecedented combination of high moratorium, improving disbursements, decline in cost of funds and strong expense management.

“Significantly improving collection efficiency data has excited the Street even as this will be put to test over the next two quarters. In the interim, strong new business momentum, high ECL buffer and access to funding provide comfort,” it said.