“Our base-case estimate factors in the partial sale of legacy corporate debt NPAs to NARCL, which should reduce the reported gross NPAs by 50 bps.” Told Subha Sri Narayananthe director, CRISIL Rating, Crisil expects the slippage to come down by 50 bps (a bps os 0.03 per cent) to 2.0% for FY2024, from 2.5% in the previous fiscal as the economy stabilizes. This should support asset quality metrics, even as the pace of write-offs, which contributed nearly 60% to the reduction in gross NPAs in the last three financial years, and a decline in big-ticket proposals.
The rating firm said the biggest improvement will be in the corporate segment, where gross NPAs are falling below 2% in the next financial year from a peak of 16% on March 31, 2018. This asset quality improvement in the corporate segment follows significant clean-up of bank books and robust risk management and underwriting. This has led to an increase in preference for borrowers with better credit profiles, which means banks are turning away lower-class borrowers.
“Continuous improvement in corporate asset quality is clearly reflected in key indicators such as credit quality of bank exposures,” it said. Krishnan Sitaraman, Senior Director and Deputy Chief Rating Officer, CRISIL. “Our study of banks’ large exposures, which constitute more than half of corporate advances, shows that the share of high-security 1 exposures has increased to 77 per cent by March 2022, from 59% in March 2017. While exposure is higher for sub-investment grade companies, half of the 7% versus 17%.”
“In the medium term, to avoid a recurrence of past asset-quality challenges, it is important that banks do not relax their credit underwriting standards,” the rating firm said.
gross NPA Among the medium, small and micro enterprises, which were the worst sufferers during the pandemic, may increase to 10-11% by March 2024, from 9.3% as of March 31, 2022. While the relief measures helped contain the deterioration in asset quality in the last fiscal, a quarter of Crisil said that 6 per cent of its restructured assets could slip into NPAs.
Retail gross NPAs are expected to be in the range of 1.8-2.0% in the medium term. While some pressure may be seen in sectors such as unsecured loans, almost half of retail loans are home loans, where borrowers have relatively better credit profiles.
The gross NPAs of the agriculture segment are expected to remain flat at 9-10 per cent after a normal monsoon and another year of harvesting.