Banks' Gross NPAs Likely To Hit Decadal Low of Sub-4% By March 2024: Assocham-Crisil Study

Banks’ gross non-performing assets (NPAs) are expected to decline 90 basis points (bps) year-on-year to less than fiver per cent in the current financial year, and by another 100 bps to a decadal low of sub-four per cent by March 31, 2024, riding on the post-pandemic economic recovery and higher credit growth, according to a joint report by Assocham and Crisil Ratings.

The report added that the biggest improvement would be in the corporate segment, where gross NPAs are seen falling below two per cent in the next fiscal from a peak of about 16 per cent as on March 31, 2018. “This follows significant clean-up of books by banks in recent years, as well as strengthened risk management and underwriting, which has led to higher preference for borrowers with better credit profiles. The steady improvement in corporate asset quality is clearly manifested in key indicators such as the credit quality of bank exposures,” Assocham Secretary-General Deepak Sood said.

He added that the twin balance sheet problem has largely been addressed, creating a situation where the credit growth has started to move up significantly. “Our banking sector is quite robust even in the midst of continuing global challenges.”

The report said the gross NPAs 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. 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.

“The retail segment has maintained steady asset quality with gross NPAs expected to be range bound at 1.8-2.0 per cent over the medium term. While the impact of higher interest rates and inflation on cash flows of individual borrowers will need to be monitored, almost half of the retail loans are home loans, where borrowers that banks cater to have relatively better credit profiles. That said, segments such as unsecured loans may see some pressure,” according to the report.

It added that while retail NPAs are expected to remain steady on a percentage basis, the absolute quantum of NPAs may rise given the sharp growth in the portfolio, thus providing opportunity for assets reconstruction companies (ARCs).

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