Crisil Ratings: Bank GNPAs may reach decadal low of 4 per cent in FY24

Crisil Ratings

Banks’ Gross Non-Performing Assets (GNPAs) are likely to fall 90 basis points (bps) to 5 per cent this fiscal year, and further 100 bps to a decadal low of 4 per cent by March 31, 2024, owing to post-pandemic economic recovery and greater credit growth, according to Crisil Ratings.

The proposed sale of NPAs to the National Asset Reconstruction Company Ltd. (NARCL) will also help the banking sector’s asset quality, it claimed.

However, not all categories would do equally well, according to the rating agency, with the corporate category showing the most improvement, with gross NPAs predicted to decrease below 2 per cent next fiscal year, from a high of 16% on March 31, 2018.

Krishnan Sitarama, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings said, “The steady improvement in corporate asset quality is clearly reflected in the 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 had also led to increased preference for borrowers with credit profiles,” he said.

He noted that the deleveraging and strengthening of India Inc. balance sheets also aided.

Gross NPAs in the MSME sector, which suffered the most during the pandemic, are expected to climb to 10-11 per cent by March 2024, up from 9.3 per cent on March 31, 2022. While relief measures did assist to keep asset quality deterioration to a minimum last fiscal year, the category had the largest restructuring, with 6% compared to 2% for the broader banking industry. According to the rating agency, almost one-fourth of these accounts might become NPAs.

While the retail sector remains resilient, with gross NPAs projected to stay range-bound at 1.8-2.0 per cent in the long term, the agriculture sector’s gross NPAs are expected to remain stable at 9-10 per cent after another year of generally average monsoon and harvest.

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