The rating company’s NPA estimate is much more benign than 9.8% projected by Reserve
’s Financial Stability Report even as it expressed concerns over significant stress on banks’ retail and MSME loan books. It projected overall stressed assets at 10.3% for FY22 expecting provisioning cost to rise to 1.9% from its earlier estimate of 1.5%.
The banking sector gross NPA was at 7.7% at the end of March 2022.
Retail loans, which have been considered as a safe bastion for lenders, are showing cracks as the pandemic drives higher delinquencies due to salary cuts and job losses. The rating firm estimated that the asset quality impact in the retail segment has been significantly higher for private banks, forcing them to restructure loans helping to defer immediate rise in slippages. Overall stressed assets in the segment are expected to increase to 5.8% by end-FY22 from 2.9% earlier.
The micro, small and medium enterprises sector has been under pressure with demonetisation, introduction of Goods & Services Tax and Real Estate Regulatory Authority (RERA), slowing down of large corporates and now COVID-19, India Ratings said.
Although the government support in form of liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and permission to restructure loans comes as an immediate relief for the sector immediately, a part of this credit support could turn bad when moratorium ends beginning the third quarter this fiscal. The rating firm projected gross NPA from MSME to rise to 13.1% by FY22 from 9.9% in FY21. Stressed assets similarly would increase to 15.6% from 11.7%.
The stable outlook on large private banks indicated their continued market share gains both in assets and liabilities, while competing intensely with public sector banks. “Most have strengthened their capital buffers and proactively managed their portfolio. As growth revives, large private banks are likely to benefit from credit migration due to their superior product and service proposition,” the rating company said.
The stable outlook on public sector banks took into account the continued government support through large capital infusions leading to a significant boost in capital buffers over the minimum regulatory requirements, significant improvement in provision coverage. The government injected Rs 2.8 trillion over FY18-FY21 and has budgeted another Rs 20000 crore for this fiscal.
The outlook on non-banking finance companies is however mixed depending on the category of their businesses. The outlook on NBFCs engaged in commercial vehicle loans and loans against property is negative while the rating company maintained stable outlook for NBFCs engaged in housing finance as well as gold loans.