The ASSOCHAM and CRISIL report also said that the expected increase in GNPAs of both banks and non-banks will lead to resolution through various avenues.
Assocham and Crisil said in a joint report that with the latest fall in retail and MSME loans, the gross non-performing assets (GNPAs) of commercial banks are expected to exceed Rs 10 lakh crore by March 2022.
“NPAs are expected to rise to 8.5-9% by March 2022, driven by slippages in retail, micro, small and medium enterprise (MSME) accounts apart from some restructured assets,” the entities said in the report.
“The effectiveness of the Insolvency and Bankruptcy Code (IBC) will be tested by a potential spike in NPAs as a pause on the initiation of new insolvency cases for one year ending March 2021 and most pandemic-induced policies or measures are unlikely to be implemented. To continue,” he said.
The report also noted that the expected increase in GNPA of both banks and non-banks will lead to resolution through various avenues, with IBC likely to be the most preferred.
As per the report, GNPAs of banks have declined from the peak seen in March 2018 and were lower in March 2020 as compared to March 2021 due to supportive measures including six-month loan moratorium, emergency credit line guarantee. Scheme (ECLGS) Debt and Restructuring Measures.
The report said that this time around, small accounts, especially those in MSME and retail sectors, would be more vulnerable than large corporates, as the latter had largely consolidated and delisted their balance sheets.
The report also pointed out that there is a need to improve the risk management practices of Indian banks, especially public sector banks.
According to the report, the laws were not in favor of lenders in the past and it allowed erring promoters to take advantage of the tedious recovery process. However, RBI has tightened norms for such defaulters and made stressed asset resolution norms more stringent, leading to better recovery of NPAs under the IBC framework.
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