On October 19, Bad loans of the Indian banking sector will grow at a slower pace in the current fiscal year than the 2018 peak, rating agency Crisil said. Gross non-performing assets (NPAs) of banks will advance to 8-9 per cent this fiscal, well under the top of 11.2 per cent seen at the end of fiscal 2018, the agency said in a report.
The COVID-19 easing projects such as the restructuring dispensation and the Emergency Credit Line Guarantee Scheme (ECLGS) will help curb the rise. With around two per cent of bank credit required under restructuring by the end of this fiscal, stressed assets, including gross NPAs and loan books under restructuring, should reach 10 per cent to 11 per cent, the agency said.
“The retail and MSME segments, which together form around 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings.
“Stressed assets in these segments are seen rising to 4-5% and 17-18%, respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment,” Sitaraman said.
Last year, the government and the RBI announced a few measures to support the stressed borrowers, including a six-month loan moratorium. Despite the efforts, stressed assets in the retail segment will grow to 4-5% by the end of this fiscal from ~3% last fiscal, Crisil said.
While home loans, the largest segment, will be the least impacted, unsecured loans are assumed to bear the effects of the pandemic, Crisil said.
The MSME (micro, small and medium enterprise) segment, despite profiting from ECLGS and the current limit improvement and tenure extension, is expected to see asset quality decline and will need restructuring to manage cash-flow challenges, Crisil said.
“In fact, restructuring is expected to be the highest for this segment, at 4-5% of the loan book, leading to a jump in stressed assets to 17-18% by this fiscal end from ~14% last fiscal. The corporate segment, though, is expected to be far more resilient,” Crisil said.
Moreover, a large part of the pressure in the corporate portfolio had already been identified during the asset quality review began five years ago, the agency said. That, joined with the secular deleveraging trend, has established the balance sheets of corporates and allowed them to tide over the pandemic comparatively unharmed compared with retail and MSME borrowers.
This is apparent from the restructuring of only ~1% in the segment. Consequently, stressed corporate assets are expected to remain range-bound at 9-10% this fiscal.
“The rural part, which was hit harder during the second wave of the pandemic, has also seen a substantial improvement. Therefore, stressed assets in the agriculture segment are expected to remain relatively stable,” Crisil said.