Gross non-performing assets (GNPAs) of banks are likely to touch the lowest level in a decade by next fiscal year, ratings agency Crisil said in a note on September 21.
GNPAs, a key indicator of asset quality, are expected to improve 90 basis points (bps) to around five per cent this fiscal and another 100 bps to a decadal low of four percent by 31 March 2024, Crisil said.
This improvement will be aided by post-pandemic economic recovery and higher credit growth, Crisil added.
The asset quality of the banking sector will also benefit from the proposed sale of NPAs to the National Asset Reconstruction Company Ltd (NARCL), the agency said.
"That said, not all segments will perform equally well. The biggest improvement will be in the corporate segment, where GNPAs are seen falling below two percent next fiscal from a peak of 16 percent as on 31 March 2018," Crisil added.
“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 at Crisil.
A Crisil study of large exposures of banks, constituting more than half of corporate advances, shows the share of high-safety exposures has increased to 77 per cent as on March 2022 from 59 per cent in March 2017, while exposure to sub-investment grade companies more than halved to 7 percent versus 17 percent.
“We expect slippages to trend 50 bps lower at two percent for fiscal 2024 versus 2.5 percent last fiscal as the economy stabilises. This should support asset quality metrics even as the pace of write-offs, which contributed almost 60 percent to the reduction in gross NPAs in the past three fiscals and large-ticket resolutions decelerate," said Subha Sri Narayanan, director, Crisil.
"Our base-case estimate factors in part-sale of legacy corporate loan NPAs to NARCL which should snip reported GNPAs by 50 bps,” added Narayanan.