For Indian banks, bad loans will fall to ten years by March 2024

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Bank loans are up 15.5% year-on-year in the two weeks to August 26

Mumbai:

Banks are likely to see a 90 basis point drop in gross non-performing assets (NPAs) this fiscal year through March to 5% to 5% and improve further to 4% by the end of March 2024, rating agency Crisil said Wednesday.

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

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Bank loans rose 15.5% in the two weeks to August 26 from a year earlier, while deposits rose 9.5%, the latest data from the Reserve Bank of India shows.

The asset quality of the banking sector will also benefit from the proposed sale of 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 positions,” said Krishnan Sitaraman, senior direct and deputy chief ratings officer at Crisil Ratings.

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A study of large bank exposures, which account for more than half of corporate advances, found that the share of high security risks increased to 77% in March 2022, compared to 59% in March 2017, while that of sub-investment grade companies more than halved to 7% versus 17%, Crisil noted.

The improvement in asset quality in the business segment follows a significant clean-up of the banking books in recent years and strengthens risk management and underwriting.

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

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“While the impact of rising interest rates and inflationary pressures on individual borrowers’ cash flows needs to be monitored, nearly half of private loans are home loans, with borrowers having relatively better credit profiles,” it said.

“In the medium term, it is important that banks do not loosen their lending standards and focus on faster growth to avoid a repeat of past asset quality challenges.

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