According to a report released on Wednesday by rating agency Crisil, gross non-performing assets (NPAs) at Indian banks are predicted to decrease by 90 basis points to 5% in the current fiscal year through March and then further to 4% by the end of March 2024.
According to the agency, “riding on post-pandemic economic recovery and faster credit growth,” the key indicator of banks’ asset quality is projected to improve.
According to the most recent Reserve Bank of India data, Indian banks’ loans increased 15.5% in the two weeks leading up to August 26 compared to the same period last year, while deposits increased 9.5%.
The proposed sale of NPAs to the National Asset Reconstruction Company Ltd (NARCL) will also improve the asset quality of the banking industry, according to the agency.
Krishnan Sitaraman, senior direct and deputy chief ratings officer at Crisil Ratings, noted that leading indicators like the credit quality of bank exposures “clearly reflect the gradual improvement in corporate asset quality.”
The percentage of high-safety exposures increased to 77% as of March 2022 from 59% in March 2017, according to a study of large exposures of banks, which account for more than half of corporate advances. Conversely, exposures to sub-investment grade companies more than halved to 7% from 17%, Crisil noted.
Following a considerable clean-up of bank books in recent years, as well as stronger risk management and underwriting, the corporate segment’s asset quality has improved.
Retail continued to be robust in the meantime, and over the medium term, gross NPAs are anticipated to remain rangebound at 1.8-2.0%, according to Crisil.