This is expected mainly due to slippages in retail, MSME accounts
Banks’ gross non-performing assets (GNPAs) are likely to exceed ₹10 lakh crore by March 2022, according to a recent Assocham-Crisil joint study released on Tuesday,
“The effectiveness of the Insolvency and Bankruptcy Code (IBC) will be tested by the probable surge in NPAs, as a year-long moratorium on the filing of new insolvency cases ended in March 2021, and most pandemic-related policies or initiatives are unlikely to be continued,” said the report.
According to the Assocham-Crisil study, the expected increase in GNPAs of both banks and non-banks this fiscal year as a result of the pandemic will provide an opportunity for players in the stressed assets market to resolve their debts through a variety of routes, with IBC likely to be the most popular.
While the proposed restructuring scheme for MSMEs and small debtors should keep NPAs from rising too much, stressed asset investors with experience and interest in these asset classes have an opportunity, according to the report.
The study also found that Indian banks’ risk management policies, particularly those of public sector banks, might be improved. Previously, laws were not in favour of lenders, allowing unscrupulous promoters to take advantage of the time-consuming recovery process. A significant number of bank wilful defaulters attests to this.
The RBI, on the other hand, has tightened the rules for such defaulters and made the rules for stressed asset resolution harsher. This, together with the IBC framework’s greater resolution of large-ticket NPAs, has resulted in improved NPA recovery.
According to the report, bank GNPAs have decreased since their high in March 2018 and were lower in March 2021 than in March 2020 due to supportive measures such as the six-month debt moratorium, emergency credit line guarantee scheme (ECLGS) loans, and restructuring measures.
The present asset quality stress cycle, according to the report, will be different from that of a few years ago. “NPAs largely came from larger, chunkier accounts at the time. Smaller accounts, particularly in the MSME and retail segments are projected to be more vulnerable this time than large corporations, which have significantly consolidated and deleveraged their balance sheets in recent years.