Bank Gross NPAs to Increase To Increase to 8%-9%, Stressed Assets To Touch 10%-11%: CRISIL
Moneylife Digital Team 19 October 2021
Gross non-performing assets (NPAs) of Indian banks will rise to 8%-9% this fiscal, well below the peak of 11.2% seen at the end of fiscal 2018. COVID-19 relief measures such as the restructuring dispensation, and the emergency credit line guarantee scheme (ECLGS) will help limit the rise, says a research note.
In the report, ratings agency CRISIL says, "With about 2% of bank credit expected under restructuring by the end of this fiscal, stressed assets comprising gross NPAs and loan book under restructuring should touch 10%-11%."
According to Krishnan Sitaraman, senior director and deputy chief ratings officer of CRISIL retail and micro, small and medium enterprises (MSMEs) segments, which together form about 40% of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around. 
"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," he added. 
Data from Reserve Bank of India (RBI) shows gross loans and advances of scheduled commercial banks (SCBs) increased to Rs113.99 lakh crore as of 31 March 2021 from Rs109.19 lakh crore as of March 2020. NPAs of public sector banks (PSBs) declined to Rs7.39 lakh crore as of March 2019, Rs6.78 lakh crore as of March 2020 and further to Rs6.17 lakh crore as of 31 March 2021 (as per provisional data), says the same report.
CRISIL says the retail segment, which had a relatively stable run over the past decade, has been singed by the pandemic, with salaried and self-employed borrowers facing significant income challenges and higher medical expenses, especially in the second wave. 
Due to this, in a first-of-its-kind move, RBI introduced loan restructuring for retail borrowers to help them tide over the situation. This followed a six-month moratorium permitted by lenders last fiscal.
Despite the measures, CRISIL says it believes stressed assets in the retail segment will rise to 4%-5% by the end of this fiscal from about 3% last fiscal (see chart below). "While home loans, the largest segment, will be the least impacted, unsecured loans are expected to bear the brunt of the pandemic," it says. 
According to the ratings agency, despite benefiting from ECLGS and the recent limit enhancement and tenure extension, the MSME segment is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges. In fact, it says, 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 about 14% last fiscal.
The corporate segment, though, is expected to be far more resilient, CRISIL says, adding, a large part of the stress in the corporate portfolio had already been recognised during the asset quality review initiated five years ago. 
"That, coupled with the secular deleveraging trend, has strengthened the balance sheets of corporates, and enabled them to tide over the pandemic relatively unscathed compared with retail and MSME borrowers. This is evident from restructuring of only around 1% in the segment. Consequently, corporate stressed assets are expected to remain range-bound at 9%-10% this fiscal," it added.
According to the note, rural segment, which was hit harder during the second wave of the pandemic, has also seen a strong recovery and, therefore, stressed assets in the agriculture segment are expected to remain relatively stable.
Subha Sri Narayanan, director of CRISIL, says, "While the performance of the restructured portfolio will definitely need close monitoring, the slippages from the restructured book are expected to be lower this time. Restructuring under various schemes in the past focussed on larger exposures and primarily involved extension of maturity without any material haircuts, resulting in high subsequent slippages. 
"This time, the entry barriers for restructuring are more stringent. Also, recent trends indicate that a reasonable proportion of borrowers, primarily on the retail side, have started making additional payments as their cash flows improve, despite having availed of restructuring. MSMEs, however, may take longer to stabilise and we remain watchful," she added.
The ratings agency says, its estimates are predicated on a base-case scenario of 9.5% GDP growth this fiscal and continued improvement in corporate credit quality and a virulent third wave and significant deceleration in demand growth could pose significant downside risks to these estimates. 
On the other hand, CRISIL says, operationalisation of the National Asset Reconstruction Company Ltd by the end of this fiscal and the expected first-round sale of Rs90,000 crore NPAs could lead to lower reported gross NPAs.
Kamal Garg
11 months ago
If that is the reality and real scenario, then, why all banks/most of the banks are reporting a lower NPA ratio. Is someone hiding or plain lying?
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