Mumbai: The gross non-performing assets (NPA) of the banks is expected to improved 90 basis points on-year to 5 per cent this fiscal year and another 100 basis points to a decadal low of 4 per cent by next fiscal, ratings agency CRISIL said in a release.
This was on the back of benefits from the proposed sale of NPAs to the National Asset Reconstruction Company Ltd (NARCL), recovery in economy post pandemic and higher credit growth.
The release said that not all segments will perform equally well. The biggest improvement will be in the corporate segment, where gross NPAs is seen falling below 2 per cent next fiscal from a peak of ~16 per cent as on March 31, 2018.
“The steady improvement in corporate asset quality is clearly reflected in leading indicators such as the credit quality of bank exposures. A CRISIL Ratings study of large exposures of banks, constituting more than half of corporate advances, shows the share of high-safety1 exposures has increased to 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,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings.
This asset quality improvement in the corporate segment follows a significant clean-up done of bank books in recent years, and strengthened risk management and underwriting. This has also led to increased preference for borrowers with better credit profiles.
Gross NPA in the MSME2 segment is, however, expected to rise to 10-11 per cent by March 2024, from 9.3 per cent as on March 31, 2022.
While relief measures did help contain asset quality deterioration last fiscal, the segment saw the most restructuring at 6 per cent compared with 2 per cent for the overall banking sector. About a fourth of these accounts could potentially slip into NPAs.
The retail segment remains resilient and gross NPAs are expected to remain rangebound at 1.8-2.0 per cent over the medium term. While the impact of increase in interest rates and inflationary pressure on individual borrowers’ cash flows will need to be monitored, almost half of the retail loans are home loans, where borrowers have relatively better credit profiles.
While segments such as unsecured loans may see some pressure, overall retail asset quality is expected to stay within expected bounds.
Agriculture segment gross NPAs is seen flat at 9-10 per cent following another year of reasonably normal monsoon and harvest.