Gross NPAs of banks may fall to 8% by March 2020, but NBFCs may continue to face challenges: Report

The system has been afflicted by the scourge of high NPAs for nearly five years now, which has led to networth erosion and also led to discovery of scams in the sector.

Press Trust of India October 01, 2019 19:15:55 IST
Gross NPAs of banks may fall to 8% by March 2020, but NBFCs may continue to face challenges: Report
  • The agency's analysts said they are also including potential reverses from the financial sector companies

  • Wholesale lending focused entities without a strong parentage will find it difficult

  • The present period of slowdown will not have any impact on the securitisation activities

Mumbai: The Indian banking system's stock of dud assets will further reduce to up to 8 percent level by March 2020, but the NBFCs may continue to face challenges,
domestic ratings agency CRISIL said.

The gross non-performing assets (NPAs) for the system will come down to 8-8.5 percent by March from the peak of 11.5 percent in March 2018 as fresh accretion through
slippages get slower and also with big ticket resolutions, it said.

The system has been afflicted by the scourge of high NPAs for nearly five years now, which has led to networth erosion and also led to discovery of scams in the sector.

The agency's analysts said they are also including potential reverses from the financial sector companies which the banking system is staring at present in their NPA
estimates.

Gross NPAs of banks may fall to 8 by March 2020 but NBFCs may continue to face challenges Report

Representational image. Reuters.

CRISIL's Somasekhar Vemuri said the banking system's credit growth will be stable at over 12 percent, on government's recapitalisation efforts for the state-run lenders and also the aggressive play by private sector ones, who will grow faster than the system.

The level of NPAs the banking system has at the end of the year will also be a final credit growth number they notch up because of the denominator effect, he said.

On the NPAs front, he said the fresh slippages are expected to come down to 3-3.5 percent for FY20, as compared to 3.8 percent in the year-ago period and a peak of 7.4 percent in end FY18.

The situation in the crisis-hit non-banking finance companies (NBFC) sector was termed as "evolving" by the agency and the assets under management growth will slowdown to 12 percent for the sector, as against 15 percent in the year-ago period and over 18 percent per annum in four years prior to that.

Wholesale lending focused entities without a strong parentage will find it difficult, it said, adding typically such NBFCs also have issues around asset liability mismatches.

There is a possibility of shrinkage in the wholesale pools, it said. However, the retail-focused NBFCs and also those with strong parentage will not witness much of
difficulties.

The agency said in the last six to seven years, the NBFCs have eaten into the business of the banks when it comes to extending loans, and the same shall now go back to the
banks because of the issues at the NBFCs.

The present period of slowdown will not have any impact on the securitisation activities, which are already breaching the historic highs, it said, adding that much of the activity is focused around retail pools.

The estimate of a reduction in the stock of NPAs comes at a time when the agency itself reported that corporate credit quality has touched a three-year low.

Officials explained that the leveraged companies, which have over borrowed, are finding the going difficult while the others would not be so.

Meanwhile, its smaller rival ICRA also reported a sharp rise in the number of rating downgrades in the first half of the fiscal, with debt of 266 companies getting
downgraded as against 170 upgrades.

Volume of debt downgraded by the agency was very high at Rs 5.2 lakh crore in H1FY20 as against Rs 3.2 lakh crore for the full year FY19, it said.

Updated Date:

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