Banks' gross NPAs may rise to 8-9% in FY22: CRISIL

The gross non-performing assets (NPAs) of Indian banks may rise to 8-9 per cent by the end of this fiscal year (FY22), 50-150 basis points higher than FY21 levels, but much below the FY18 levels when NPAs reached a peak of 11.2 per cent, said rating agency CRISIL in a statement.

The stressed assets of the banking sector may touch 10-11 per cent, as 2 per cent of assets will be restructured by the end of FY22. The most impacted MSME and retail segments are likely to see a higher accretion of NPAs and stressed assets.

The projections are made on the assumption that the Indian economy will grow at 9.5 per cent. A third wave of the coronavirus (Covid-19) pandemic could pose challenges to demand growth, then there may be significant downside risks to the estimates made.

If the National Asset Reconstruction Company Limited (NARCL) or "bad bank" gets operationalised this fiscal, the NPAs of the banking system may fall further.

"The retail and MSME segments, which together form ~40 per cent 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 per cent and 17-18 per cent, respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment," said Krishnan Sitaraman, senior director & deputy chief ratings officer, CRISIL Ratings.

The retail segment, which otherwise is one of the best performing sector, has shown signs of stress during the Covid-19 pandemic as both salaried and self-employed borrowers faced income challenges and higher medical expenses, especially during the second wave.

Stressed assets in the retail segment may reach 4-5 per cent by the end of FY22 compared to 3 per cent in FY21 despite the first of its kind restructuring scheme brought in by the Reserve Bank of India (RBI) for retail borrowers, which followed a six months moratorium on repayments during the first wave of the pandemic.

The rating agency's assessment suggests home loans will be the least impacted segment, but unsecured loans will see stress because of Covid.

Despite the measures brought in by the central bank and the government, the MSME segment will see its stressed asset portfolio rise to 17-18 per cent by the end of FY22, compared to 14 per cent in FY21. According to CRISIL, the MSME segment may see restructuring at 4-5 per cent of the loan book.

"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," the rating agency said.

The rural segment, which was hit harder during the second wave of Covid-19, has also seen a substantial recovery. Stressed assets in the agriculture segment are expected to remain relatively stable, said CRISIL.

"While the performance of the restructured portfolio will need close monitoring, the slippages from the restructured book are expected to be lower this time. MSMEs, however, may take longer to stabilise and we remain watchful," said Subha Sri Narayanan, Director, CRISIL Ratings.