Indian banks see bad loans falling to decade low of 4% by FY24 end

"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 direct and deputy chief ratings officer at Crisil Ratings.

A study of large exposures of banks, constituting more than half of corporate advances, showed the share of high-safety exposures has increased to 77% as on March 2022 from 59% in March 2017, while those to sub-investment grade companies more than halved to 7% versus 17%, Crisil noted.

The asset quality improvement in the corporate segment follows a significant clean-up of bank books in recent years, and strengthened risk management and underwriting.

Meanwhile, the retail segment stayed resilient and gross NPAs are expected to remain rangebound at 1.8-2.0% over the medium term, Crisil pointed out.

"While the impact of increase in interest rates and inflationary pressure on individual borrowers' cash flows will need to be monitored, almost half of the retail loans are home loans, where borrowers have relatively better credit profiles," it said.

"Over the medium term, to avoid a repeat of past asset-quality challenges, it is important that banks don't relax their credit underwriting standards while focussing on faster growth," it added.