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Reflecting further improvement in asset quality of banks, their gross non-performing assets (GNPAs) are expected to decline to 5.0 per cent by March 2023. They may even touch decadal low of about 4 per cent by March 2024, riding on post-pandemic economic recovery and higher credit growth, according to rating agency Crisil.
This asset quality improvement in the corporate segment follows a significant clean-up of bank books in recent years, and strengthened risk management and underwriting. This has also led to greater preference for borrowers with better credit profiles. The deleveraging and strengthening of India Inc balance sheets helped as well.
The asset quality of the banking sector will also benefit from the proposed sale of NPAs to the National Asset Reconstruction Company Ltd (NARCL), whose aim is to resolve stressed big-ticket assets amounting to about Rs two trillion.
The biggest improvement will be in the corporate segment, where gross NPAs are seen falling below two per cent next fiscal, from a peak of about 16 per cent as on March 31, 2018.
Krishnan Sitaraman, Deputy Chief Ratings Officer, Crisil Ratings, said the share of high-safety large exposures has increased to 77 per cent as on March 2022 from 59 per cent in March 2017.
The large exposures constitute more than half of corporate advances of banks. The exposure to sub-investment grade companies more than halved to 7 per cent in 2022 versus 17 per cent in 2017.
While the corporate segment continues to improve and retail stays resilient, asset quality of Micro, Small and Medium Enterprises (MSMEs) is monitorable. Gross NPA in the MSME segment, which suffered the most during the pandemic, may rise to 10-11 per cent by March 2024 from about 9.3 per cent as on March 31, 2022, Crisil said.
While relief measures did help contain asset quality deterioration last fiscal, the segment saw the most restructuring at about six per cent compared with two per cent for the overall banking sector. About a fourth of these accounts could potentially slip into NPAs.
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First Published: Wed, September 21 2022. 16:52 IST