Regulatory forbearance to contain NPAs in FY22: Report

Covid-19 relief measures such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) is expected to help limit the rise. With 2% of bank credit expected under restructuring by the end of this fiscal, stressed assets-comprising gross NPAs and loan book under restructuring-should touch 10-11%. Crisil has made these estimates factoring a 9.5 per cent growth in FY’22.

“The numbers would have trended even higher but for write-offs, primarily in the unsecured segment.” said Krishnan Sitaraman, senior director and deputy chief ratings officer, Crisil Ratings. The retail and MSME segments, which together form 40% of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around. Stressed assets in these segments are seen rising to 4-5% and 17-18%, respectively, by this fiscal end, Crisil said.

The retail segment, which had a relatively stable run over the past decade has been badly hit by the pandemic, with salaried and self-employed borrowers facing significant income challenges and higher medical expenses, especially in the second wave.

Despite restructuring and a six-month moratorium on retail loans, Crisil believes stressed assets in the retail segment will rise to 4-5% by the end of this fiscal from 3% last fiscal.

The MSME segment, despite benefiting from ECLGS and the recent limit enhancement and tenure extension, is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges. In fact, restructuring is expected to be the highest for this segment, at 4-5% of the loan book, leading to a jump in stressed assets to 17-18% by this fiscal end from 14% last fiscal.

While home loans, the largest segment, will be the least impacted, unsecured loans are expected to bear the brunt of the pandemic, Crisil said.

The corporate segment is expected to be far more resilient. A large part of the stress in the corporate portfolio had already been recognised during the asset quality review initiated five years ago. Besides, the deleveraging trend, has strengthened the balance sheets of corporates, and enabled them to tide over the pandemic relatively unscathed compared with retail and MSME borrowers.

The rural segment, which was hit harder during the second wave of the pandemic, has also seen a strong recovery. Therefore, stressed assets in the agriculture segment are expected to remain relatively stable, Crisil said.