Asset quality of the banking sector would also benefit from the proposed sale of NPAs to NARCL
Asset quality of the banking sector would also benefit from the proposed sale of NPAs to NARCL
The gross non-performing assets (GNPAs) of banks is expected to improve 90 basis points (bps) to 5% this fiscal year-on-year, and another 100 bps to a decadal low of 4% by March 31, 2024 , riding on post-pandemic economic recovery and higher credit growth, Crisil Ratings said in a report.
The asset quality of the banking sector would also benefit from the proposed sale of NPAs to the National Asset Reconstruction Company Ltd. (NARCL), it said.
However, not all segments would perform equally well, the rating agency said, adding the biggest improvement would be in the corporate segment, where gross NPAs is expected to falling below 2% next fiscal from a peak of 16% as on March 31, 2018.
Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings said, “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-safety exposures has increased to 77% as on March 2022 from 59% in March 2017, while exposure to sub-investment grade companies more than halved to 7% versus 17%.”
“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,” he said.
The deleveraging and strengthening of India Inc. balance sheets also helped, he added.
Gross NPAs in the MSME segment, which suffered the most during the pandemic, may rise to 10-11% by March 2024 from 9.3% as on March 31, 2022. While relief measures did help contain asset quality deterioration last fiscal, the segment saw the most restructuring at 6% compared with 2% for the overall banking sector. About a fourth of these accounts could potentially slip into NPAs, the rating agency said.
While the retail segment remains resilient and gross NPAs are expected to remain rangebound at 1.8-2.0% over the medium term the agriculture segment gross NPAs is seen flat at 9-10% following another year of reasonably normal monsoon and harvest.
Subha Sri Narayanan, Director, Crisil Ratings, said, “We expect slippages to trend 50 bps lower at 2% for fiscal 2024 versus 2.5% last fiscal as the economy stabilises.”
“This should support asset quality metrics even as the pace of write-offs, which contributed almost 60% to the reduction in gross NPAs in the past three fiscals, and large-ticket resolutions decelerate. Our base-case estimate factors in part-sale of legacy corporate loan NPAs to the NARCL, which should snip reported gross NPAs by 50 bps,” she said
