Bad loans to rise up to 150bps in FY22: Study

MUMBAI: Non-performing assets (NPAs) of banks are likely to rise to 8-9% in FY22 from 7.5% as of March 2021, driven by defaults in the retail and small business segment. However, this rise of 50-150 basis points (100bps = 1 percentage point) would be still lower than the peak of 11.2% in March 2018 and 9.1% in March 2019 as the corporate sector continues to be resilient.
According to a report by Crisil, Covid relief measures like the restructuring dispensation and the Emergency Credit Line Guarantee Scheme (ECLGS) will help limit the rise. With around 2% of bank credit expected under restructuring by the end of this fiscal, stressed assets — comprising gross NPAs and loan book under restructuring — should touch 10-11%.
“The retail and MSME segments, which together form about 40% of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around. Stressed assets in these segments are seen rising to 4-5% from 3% last fiscal and 17-18% from around 14%, respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment,” said Crisil Ratings senior director Krishnan Sitharaman.
According to Crisil, the retail segment, which had a relatively stable run over the past decade, has been singed by the pandemic with salaried and self-employed borrowers alike facing significant income challenges and higher medical expenses, especially in the second wave. Despite the measures, Crisil Ratings believes stressed assets in the retail segment will rise. While home loans, the largest segment, will be the least impacted, unsecured loans are expected to bear the brunt of the pandemic.
The MSME segment is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges. Crisil expects 4-5% of the MSME loan book to be restructured, leading to a jump in stressed assets to 17-18% by this fiscal end. As against this, only 1% of the corporate loan book is expected to undergo restructuring.
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.