On account of higher recoveries from big-ticket stressed assets and slow accretion of fresh non-performing assets (NPAs), the asset quality of banks will improve significantly, with gross NPAs shrinking 350 basis points (bps) to 8 per cent by March 2020, stated a report by credit rating agency Crisil.
In March 2018, NPAs in the banking sector was at 11.5 per cent and then it gradually came down to 9.3 per cent in March 2019.
State-owned banks, which account for 80 per cent of the NPAs in the banking system, will see their gross NPAs shrinking 400 bps to 10.6 per cent by March 2020, down from 14.6 per cent in March 2018.
“In FY19, write-offs, coupled with recoveries under the IBC in key large stressed assets, played a critical role in the reduction of NPAs. Further, after a gap of six years, the pace of NPA reduction is estimated to have overtaken that of fresh slippages for the banking system in FY19. Private Banks, which have had fewer asset quality issues, should also witness an improvement in portfolio performance”, said Krishnan Sitaraman, senior director, Crisil Ratings.
According to the report by CRISIL, the rate of accretion of fresh NPAs halved in FY19 to 3.7 per cent, compared to 7.4 per cent in the previous financial year and is expected to drop to 3.2 per cent in FY20. This because banks have already recognised Rs 17 trillion worth of stressed assets as NPAs since FY16 mainly due to the Reserve Bank of India’s (RBI) stringent norms in NPA recognition and asset quality review.
Crisil expects a pick-up in recoveries FY 20 from large NPA accounts, especially from those which are under the insolvency process. “This is assuming the bulk of the pending cases in the National Company Law Tribunal (NCLT) would be resolved with higher recovery rates and faster resolution times than that hitherto seen in the country”, the report said.