With fresh slippages in retail and MSME loans, the gross non-performing assets (GNPAs) of commercial banks are expected to exceed ₹10 lakh crore by March 2022, Assocham and Crisil said in a joint report.
“NPAs are expected to rise to 8.5-9% by March 2022, driven by slippages in retail, micro, small and medium enterprise (MSME) accounts, besides some restructured assets,” the entities said in the report.
“The effectiveness of the Insolvency and Bankruptcy Code (IBC) will be tested by the potential spike in NPAs as the standstill on initiation of fresh insolvency cases for a year ended in March 2021 and as most of the pandemic-induced policies or measures are unlikely to be continued,” they added.
The report also noted that the expected increase in GNPAs of both banks and non-banks would lead to resolutions through various routes, with IBC likely to be the most preferred one.
According to the report, the GNPAs of banks have declined from the peak seen in March 2018 and were lower as of March 2021 vis-à-vis March 2020 on account of supportive measures, including the six-month debt moratorium, emergency credit line guarantee scheme (ECLGS) loans and restructuring measures.
The report stated that this time, smaller accounts, especially in the MSME and retail segments, would be more vulnerable than large corporates, as the latter had consolidated and deleveraged their balance sheets considerably.
The report also highlighted that risk management practices of Indian banks, especially public sector banks, needed to improve.
As per the report, laws were not in favour of lenders in the past and this allowed erring promoters to exploit the tedious recovery procedure. However, the RBI has tightened norms for such defaulters and made stressed asset resolution norms more stringent, leading to better recovery of NPAs under the IBC framework.
