Gross NPAs of banks likely to reduce by 8 percent: Report

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With the slowdown in fresh bad loans and higher recoveries, the bank’s Non-Performing Assets (NPAs) is likely going to reduce to nearly 8 percent by March 2020, says a report.

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The NPA in the banking system had peaked at 11.5 percent in March 2018 and then declined to 9.3 percent in March 2019.

Crisil said in a note that, “Asset quality of banks should witness a decisive turnaround this fiscal (FY20) with gross NPAs reducing by 350 basis points (bps) over two years to around 8 percent by March 2020. This will be driven by a combination of the reduction in fresh accretions to NPA as well as stepped-up recoveries from existing NPA accounts.”

The  public sector banks (PSBs), which account for over 80 percent of the NPAs in the system, should see their gross NPAs climb down over 400 bps to close to 10.6 percent by March 2020 from a peak of 14.6 percent in March 2018, the note added

The slippages have been on the wane since last fiscal and the rate of accretion of fresh NPAs halved in FY19 to 3.7 percent compared with 7.4 percent in the previous fiscal and is expected to drop to around 3.2 percent in FY20, the note stated.

This is mainly because banks have already recognised around Rs 17 lakh crore of stressed loans as NPAs since FY16, led by accelerated NPA recognition following the Reserve Bank of Indias (RBIs) stringent norms and asset quality reviews.

The note estimates for fiscal 2020 also factor in slippages from the stress being witnessed in a few large corporate and financial sector entities.

The rating agency said the resolution of some large NPA accounts under NCLT-1 and NCLT-2 is expected to fructify by the end FY20.

This could account for almost half of the total reductions in gross NPAs of the banking system by March 2020, it said.

“Recapitalisation has ensured that a number of PSBs have the balance sheet strength to provide for reasonable haircuts on a resolution of stressed assets,” the note added.

The rating agency’s credit ratio number of upgrades to downgrades increased to 1.81 percent in H2 of FY19 compared with 1.67 percent in FY18.

“Though the credit ratio could moderate going forward, steady domestic growth and benign interest rates should continue to support credit profiles in the corporate sector,” it said.

It further said given the RBIs stance on restructuring of loans to small and medium enterprises (SME) till the end of FY20, the overall NPA position of banks should continue to witness an improving trend.

(With Agency Inputs)

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