Gross non-performing assets (NPAs) of banks are expected to rise to 8-9% this fiscal from 7.5% on March 31, but they will still remain below the peak of 11.2% seen at the end of FY2018, Crisil Ratings said in a report.
It said COVID-19 relief measures such as restructuring disbursement and Emergency Credit Line Guarantee Scheme (ECLGS) would help limit the growth.
“With an expectation of 2% bank credit under restructuring by the end of this fiscal, stressed assets – including gross NPAs and loan book under restructuring – should reach 10-11%,” the rating agency said.
Krishnan Sitaraman, Senior Director and Deputy Chief Rating Officer, said, “The retail and MSME segments, which together form 40% of bank credit, are expected to see higher accretion of NPAs and stressed assets.”
‘write-off effect’
“Stressed assets in these segments are growing at 4-5% and 17-18% respectively by the end of this financial year. The numbers would have been even higher, but for write-offs, mainly in the vulnerable section,” he said.
The rural segment, the worst-affected 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, the rating agency pointed out.
‘Base-case scenario’
It said the estimates were based on a base-case scenario of 9.5 per cent GDP growth in this fiscal and continued improvement in corporate credit quality.
It added that the third wave and a significant decline in demand growth could pose significant downside risks to these projections.
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