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Gross bad debt to rise 9%, stressed assets to touch 11% for banks, says Crisil

The Covid-19 relief measures such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) will help limit the rise.

October 19, 2021 / 04:01 PM IST

Bad loans of Indian banking sector will rise at a slower pace in the current fiscal year compared with the 2018 peak, rating agency Crisil said on October 19.

Gross non-performing assets (NPAs) of banks will rise to 8-9 percent this fiscal, well below the peak of 11.2 percent seen at the end of fiscal 2018, the agency said in a report.

The Covid-19 relief measures such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) will help limit the rise, it said.

With around two percent of bank credit expected under restructuring by the end of this fiscal, stressed assets, comprising gross NPAs and loan book under restructuring, should touch 10 percent to 11 percent, the agency said.

"The retail and MSME segments, which together form around 40 percent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around," said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings.


"Stressed assets in these segments are seen rising to 4-5% and 17-18%, respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment,” Sitaraman said.

Last year, to help the stressed borrowers, both the government and the RBI had announced a few measures including a six month loan moratorium.  Despite the measures, stressed assets in the retail segment will rise to 4-5% by the end of this fiscal from ~3% last fiscal, Crisil said.

"While home loans, the largest segment, will be the least impacted, unsecured loans are expected to bear the brunt of the pandemic," Crisil said.

The MSME (micro, small and medium enterprise) segment, despite benefiting from ECLGS and the recent limit enhancement and tenure extension, is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges, Crisil said.

"In fact, restructuring is expected to be the highest for this segment, at 4-5% of the loan book, leading to a jump in stressed assets to 17-18% by this fiscal end from ~14% last fiscal. The corporate segment, though, is expected to be far more resilient," Crisil said.

Further, a large part of the stress in the corporate portfolio had already been recognised during the asset quality review initiated five years ago, the agency said.

"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.

This is evident from restructuring of only ~1% in the segment. Consequently, corporate stressed assets are expected to remain range-bound at 9-10% this fiscal.

The rural segment, which was hit harder during the second wave of the pandemic, has also seen a strong recovery. Therefore, stressed assets in the agriculture segment are expected to remain relatively stable, Crisil said.

Moneycontrol News
Tags: #Bank NPA
first published: Oct 19, 2021 03:16 pm

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