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Gross NPAs of Indian banks will drop down to 5% by March 2023, says Crisil

25% of restructured accounts of MSMEs likely to turn NPAs

September 22, 2022 10:04 IST | India Infoline News Service
By March 2023, gross non-performing assets (GNPAs) for banks are predicted to drop to 5%, reflecting continued improvement in asset quality. By March 2024, they could even reach a decadal low of about 4%, thanks to the post-pandemic economic rebound and faster credit growth, predicts rating agency Crisil.
Following a considerable clean-up of bank books in recent years as well as stronger risk management and underwriting, this asset quality improvement in the corporate category is the result. Additionally, this has resulted in a stronger preference for debtors with superior credit histories. It also helped that India Inc.'s balance sheets were strengthened and deleveraged.

The proposed sale of NPAs to the National Asset Reconstruction Company Ltd. (NARCL), whose goal is to resolve stressed big-ticket assets totaling around Rs two trillion, would help improve the asset quality of the banking industry.
The corporate category will experience the most recovery as gross NPAs are predicted to drop below 2% next fiscal year from a peak of around 16% as of March 31, 2018.
According to Krishnan Sitaraman, Deputy Chief Ratings Officer of Crisil Ratings, the percentage of high-safety big exposures climbed from 59 to 77% as of March 2022. Over 50% of bank corporate advances are made with high exposures. Compared to 2017, the exposure to enterprises below investment grade more than halved to just 7% in 2022.
Asset quality of Micro, Small and Medium Enterprises (MSMEs) may be tracked, even while the corporate sector keeps getting better and retail remains resilient. According to Crisil, gross NPA in the MSME industry, which was most hit by the pandemic, may increase from roughly 9.3% as of March 31, 2022, to 10-11% by March 2024.

While relief measures did assist slow the worsening of asset quality the previous fiscal year, the category had the largest restructuring, at around 6% compared to 2% for the whole banking industry. A quarter of these accounts can end up being non-performing assets.

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