Banks may see bad loans fall to a decadal low of 4% by March 2024: Crisil report
Sep 21, 2022
New Delhi [India], September 21 Gross non-performing assets (GNPAs) of banks are likely to decline by 90 basis points (bps) to 5 per cent this year and further improve to a decadal low of 4 per cent by March 31, 2024, pushed by post-pandemic economic recovery and higher credit growth, said rating agency Crisil on Wednesday.
The credit rating agency also said the banking sector's asset quality will also benefit from the proposed sale of NPAs to the National Asset Reconstruction Company Ltd (NARCL).
The biggest achievement will be in the corporate segment where gross NPAs is seen falling below 2 per cent in the next fiscal from the peak of 16 per cent as on March 31, 2018.
Crisil Ratings Senior Director and Deputy Chief Rating Officer Krishnan Sitaraman said, "The steady improvement in corporate asset quality is clearly reflected in leading indicators such as the credit quality of bank exposures."
The Crisil study of large exposures of banks, which constitute over half of corporate advances, shows that the share of high-safety exposures has increased 77 per cent as on March 2022 from 59 per cent in March 2017, while exposure to sub-investment grade companies more than halved to 7 per cent versus 17 per cent.
The study said that a significant clean-up of bank books in recent years, and strengthened risk management and underwriting have resulted in asset quality improvement in the corporate segment. This also led to the increased preference for borrowers with better credit profiles.
The deleveraged and strengthening of India Inc balance sheets also helped. This is reflected in the Crisil Ratings credit ratio (upgrades to downgrades), which reached 5.04 in the second half of last fiscal.
The Crisil study also said mechanisms such as the Insolvency and Bankruptcy Code (IBC) have also supported recoveries and increased credit discipline among borrowers. Gross NPA in the MSME segment, which suffered the most during the pandemic, may rise to 10-11 per cent by March 2024 from 9.3 per cent as on March 31, 2022.
The rating credit agency said while the impact of rising interest rates and inflationary pressure on individual borrowers' cash flows needs to be monitored, almost half of the retail loans are home loans, where borrowers have relatively better credit profiles.
