Here’s what Crisil thinks of India’s NPA scenario in FY2019-20

Crisil said that public sector banks are likely to see their NPAs plunge over 400 bps to 10.6 percent by March 2020

New Delhi: By the end of financial year 2019-20, banks are likely to bring down non-performing assets to nearly 8 percent due to higher recoveries and slowdown in fresh bad loans, Crisil said in a report. Bad loans in the banking sector had increased to 11.5 percent in March 2018 and later slumped to 9.3 percent March 2019.

'Asset quality to see a decisive turnaround'

"Asset quality of banks should witness a decisive turnaround this fiscal (FY20) with gross NPAs reducing by 350 basis points (bps) over two years to around 8 per cent by March 2020. This will be driven by a combination of reduction in fresh accretions to NPA as well as stepped-up recoveries from existing NPA accounts," Crisil said.

It added that public sector banks (PSBs), which account for over 80 percent of the total NPAs in the banking sector, are likely to see their NPAs plunge over 400 bps to 10.6 percent by March 2020, down from 14.
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6 percent in March 2018.

Fresh NPAs halved in FY19

While slippages have slowed since the last fiscal, the rate of accretion of fresh NPAs has also halved to 3.7 percent in financial year 2018-19 as opposed to 7.4 percent in the previous fiscal. This is further expected to drop to 3.2 percent in FY2019-20, Crisil said.

"This is mainly because banks have already recognised around Rs 17 trillion of stressed loans as NPAs since FY16, led by accelerated NPA recognition following the Reserve Bank of India's (RBIs) stringent norms and asset quality reviews," the report said.

Resolutions from NCLT will give a great boost

The rating agency said that resolution of new NPA accounts under NCLT-1 and NCLT-2 is expected to almost half the total reductions in gross NPAs of the banking system by March 2020. "Recapitalisation has ensured that a number of PSBs have the balance sheet strength to provide for reasonable haircuts on resolution of stressed assets," the report added. Crisil's credit ratio number of upgrades to downgrades increased to 1.81 percent in H2 of FY19 compared with 1.67 percent in FY18.

"Though the credit ratio could moderate going forward, steady domestic growth and benign interest rates should continue to support credit profiles in the corporate sector," it said.