Bank NPAs to improve to decadal low of 3.8% by FY24-end, says Crisil

Banks' gross non-performing assets (NPAs) will reduce further to a decadal low of 3.8 per cent by end of FY2023-24, credit rating agency Crisil said on Monday.

The agency estimates NPAs to reduce to 4.2 per cent by end of the just concluded FY23 as against 5.9 per cent in the year-ago period. It had earlier estimated NPAs to come at 4 per cent by end of FY24.

Crisil said a major factor influencing the bank NPAs is the improvement in the high-value corporate loanbooks, where the gross NPAs are slated to come below 2 per cent. Corporates have been reducing their leverage through a string of measures, including prepayment of loans as well.

Additionally, strengthened risk management and underwriting is also helping the lenders towards lowering the NPAs, the agency said.

When asked about the growing trend of writing unsecured loans in the retail segment, the agency's deputy chief rating officer Krishnan Sitaraman said they occupy a very small proportion of the overall loans.

He said 26 per cent of the overall banking industry exposure is to the retail segments, of which half is home loans and one-fourth is vehicle. All the remaining loans, including the unsecured credit card and personal loans fall in the remaining one-fourth of the retail book, he explained.

Its senior director Somasekhar Vemuri said the last time the banking system's gross NPAs was at this level was in March 2014 quarter, and underlined that the stressed assets situation was not exactly representative of the underlying challenges because of the existence of myriad schemes like corporate debt restructuring, strategic debt restructuring etc which led to allegations of underreporting NPAs.

The RBI had to embark on the asset quality review, under which it directed lenders to cleanup their books by asking them to recognise individual assets as NPAs.

The agency said the banking sector is better capitalised benefiting from recent capital infusion, but the ability to attract deposits to keep pace with an increasing credit growth will be a monitorable.

Sitaraman said the net interest margins, which have increased in FY23 amid a hiking interest rate cycles as the transmission to lending is faster than to deposits, will moderate in FY24.

Amid global events, which include some banks in the US going down and frantic actions by regulators in Europe to prevent the contagion, the agency said the Indian banking sector will be able to handle the volatilities.

Among other factors, India has had lower levels of interest rate hikes, healthier bank balance sheets with record low NPAs, depositor-funded liabilities and better regulations on asset and investment book management, the agency said.

The banking system will maintain the loan growth at 15 per cent in FY24 as FY23, the agency said. For the non-banks, it said the assets under management are set to grow and concerns surrounding asset quality are receding.

The NBFCs segment will witness a 13-14 per cent jump in asset under management to take the overall AUM to Rs 34 lakh crore, it said, adding Rs 70,000 crore of capital infusion into entities in the last few years has helped.