NPAs UNDER TIGHT LEASH

NON-PERFORMING ASSETS HAVE DIPPED BUT IT'S TOO EARLY TO UNCORK THE BUBBLY AS GLOBAL SLOWDOWN IMPACTS EXPORT AND MSME SECTORS.

- APRAJITA SHARMA

IT’S ONE OF THE most important achievements of the banking industry over last few years— sorting the bad loan mess that once threatened to take the entire sector down with it. Regulator Reserve Bank of India (RBI) and Centre laid the groundwork to resolve non-performing assets (NPAs). While RBI ordered steps such as asset quality review to recognise the extent of the bad loan problem, the government came out with the Insolvency And Bankruptcy Code (IBC) framework under which banks can recover loans to companies in an orderly and time-bound manner. After all, corporate loans are the biggest chunk on bank books. “Gross NPAs in corporate loans peaked at roughly 16% in March 2018. We expect them to touch 2% by March 2024,” says Krishnan Sitaraman, senior director and chief ratings officer at Crisil Ratings. As NPAs in corporate loans fell, overall gross NPAs halved in just three years from 8.2% of outstanding loans in FY20 to 4.2% in FY23. Gross NPAs are loans a bank fails to collect while net NPA is the number after deducting provisioning for doubtful debt. Banking sector’s gross NPAs had peaked at 11.2% in March 2018. Rating agencies Crisil and India Ratings expect them to touch a decade low of 3.3-3.8% by FY24-end. A loan is classified as an NPA if the borrower does not make interest or principal repayments for 90 days.