” Our base-case estimate factors in part-sale of legacy corporate loan NPAs to the NARCL, which should snip reported gross NPAs by 50 bps.” said Subha Sri Narayanan, director, Crisil Ratings. Crisil expects slippages to trend 50 bps ( one bps os 0.03 percent) lower at 2.0% for fiscal 2024 versus 2.5% last fiscal as the economy stabilises. This should support asset quality metrics even as the pace of write-offs, which contributed almost 60% to the reduction in gross NPAs in the past three fiscals, and large-ticket resolutions decelerate.
The biggest improvement will be in the corporate segment, where gross NPAs are seen falling below 2% next fiscal from a peak of 16% as on March 31, 2018, the ratings firm said. This asset quality improvement in the corporate segment follows a significant clean-up of bank books and strengthened risk management and underwriting. This has also led to increased preference for borrowers with better credit profiles, implying banks are shunning lower graded borrowers.
“The steady improvement in corporate asset quality is clearly reflected in leading indicators such as the credit quality of bank exposures,” said Krishnan Sitaraman, senior director and deputy chief ratings officer, Crisil. “Our study of large exposures of banks, constituting more than half of corporate advances, shows the share of high-safety1 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%.”
” Over the medium term, to avoid a repeat of past asset-quality challenges, it is important that banks don’t relax their credit underwriting standards while focussing on faster growth” the ratings firm said.
Gross NPA in the medium, small and micro enterprises which suffered the most during the pandemic, may rise to 10-11% by March 2024 from 9.3% as on March 31, 2022. Though relief measures did help contain asset quality deterioration last fiscal, a fourth of its 6 per cent restructured assets could slip into NPAs Crisil said.
Retail gross NPAs are expected to remain range bound at 1.8-2.0% over the medium term. While segments such as unsecured loans may see some pressure, almost half of the retail loans are home loans, where borrowers have relatively better credit profiles.
Agriculture segment gross NPAs are expected to be flat at 9-10 percent following another year of reasonably normal monsoon and harvest.