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

Commuters walk past a bank sign along a road in New Delhi, India November 25, 2015. REUTERS/Anindito Mukherjee/File Photo

MUMBAI, Sept 21 (Reuters) – Indian banks are expected to see a 90 basis point drop in gross non-performing assets (NPA) to 5% in this fiscal year to March and further improvement to 4% by at the end of March 2024, note the Crisil agency said on Wednesday.

The key indicator of banks’ asset quality is expected to improve, “thanks to the post-pandemic economic recovery and higher credit growth,” the agency said in a statement.

Loans (INLOAN=ECI) from Indian banks jumped 15.5% in the two weeks to August 26 from a year earlier, while deposits (INDEP=ECI) rose 9.5% , according to the latest data from the Reserve Bank of India.

The banking sector’s asset quality will also benefit from the proposed sale of the NPAs to the National Asset Reconstruction Company Ltd (NARCL), the agency said.

“The steady improvement in corporate asset quality is clearly reflected in leading indicators such as the credit quality of bank exposures,” said Krishnan Sitaraman, direct and deputy head of ratings at Crisil Ratings.

A study of large bank exposures, constituting more than half of corporate advances, showed that the share of high-security exposures rose from 59% in March 2017 to 77% in March 2022, while those to quality corporates lower than over halved to 7% from 17%, Crisil noted.

The improvement in asset quality in the corporate segment follows a major cleaning up of the banking books in recent years and a strengthening of risk management and underwriting.

Meanwhile, the retail segment has remained resilient and gross NPAs are expected to remain in the 1.8-2.0% range over the medium term, Crisil pointed out.

“While the impact of rising interest rates and inflationary pressures on the cash flows of individual borrowers will need to be monitored, nearly half of retail loans are home loans, where borrowers have different profiles. relatively better credit,” he said.

“Over the medium term, to avoid a repeat of past asset quality problems, it is important that banks do not relax their credit underwriting standards while focusing on faster growth,” he added. .

Reporting by Swati Bhat; Editing by Dhanya Ann Thoppil

Our standards: The Thomson Reuters Trust Principles.