Asset quality review may have permanently reset banking system NPA

While NPA ratios have sharply moderated in the past two years, they are still way ahead of pre-AQR days

Just four years have gone by since asset quality review (AQR) was introduced by the Reserve Bank of India (RBI) to clean up the banking system. Yet, AQR has had a lingering impact in the system. While the exercise may go down the history as the most stringent one undertaken by a regulator in the Indian banking system to weed out toxic assets, numbers suggest that AQR may have permanently reset the non-performing asset (NPA) ratios for the banking system.

Sample this, in FY15, a year prior to the introduction of AQR, the system level gross and net NPA ratios