A domestic rating agency ICRA in its latest report has said that the banking system's gross non-performing assets (GNPAs) are set to decline to at least 7.1 percent by March 2022, as against 7.6 percent at FY21-end. The NPAs will go lower on higher recoveries and upgrades, and also faster credit growth. It also said that the fresh accretion to the NPAs will be higher in FY22 due to the absence of any regulatory dispensations like moratoriums.
The rating agency said the fresh NPA generation declined to Rs 2.6 lakh crore or 2.7 per cent of advances in FY21 compared to Rs 3.7 lakh crore or 4.2 per cent in FY20 and added that the same will be higher in FY22. It also said the headline asset quality numbers of banks do not reflect the underlying stress on the income and cash-flows of the borrowers impacted because of COVID-19 and various regulatory and policy measures such as the moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under Emergency Credit Line Guarantee Scheme (ECLGS) had a positive impact on the reported asset quality of lenders.
In the absence of standstill on asset classification, ICRA expects the fresh NPAs generation to be higher, however, it also expects the recoveries and upgrades to improve in FY22, adding that the first half of the ongoing fiscal can see higher accretions due to the second wave of the pandemic. It also believed that the banks are relatively better placed to handle the stress from the second wave and hence it continue to maintain a stable outlook on the sector.