While the euphoria that India Inc is making a comeback is gathering momemtum due the bull run on the stock markets and the better-than-expected GDP numbers, there are concerns that indicate that all might not be well. Rating agency Crisil, a subsidiary of Standard & Poor?s, has cautioned that the Indian economy is still going through a period of stress and downturn risk is not completely bottomed out as yet. The likely growth in non-performing assets (NPAs), a trigger for the global growth to dither, is raising its ugly head in India as NPAs of corporates is set to grow three times.

?Although the rate of decline of growth clearly has decelerated, we are not completely bottomed out and the Indian economy is likely to see a three-time fold in NPAs in the next two years,?? said Roopa Kudva, managing director & CEO, Crisil. Speaking exclusively to FE, Kudva reeled out necessary statistics for substantiating her stand.

Crisil?s asset quality projection say the gross of NPAs in the Indian banking system will go from 2.3% as on March 2008, to 5% by March 2011. According to her, the absolute quantum of NPAs in the Indian economy will go up by three times, from the current NPA level to Rs 2 lakh crore by 2011. Currently, of Rs 27 lakh crore of total credit exposure of the Indian banking system Crisil is projecting that the maximum increase in NPAs will come from the corporate sector, Kudva said.

The sticky assets in the corporate sector will, therefore, go from 1.6% to 4.1% by 2011, while retail NPAs will go from 3.2% to 4.7%. However agri-NPAs will go from 3.2% to 6.1% and the NPAs in small sector industry (SSI) will see the maximum rise, from 3.1% to 10% by March 2011.

In fiscal ended March 2009, Crisil upgraded ratings of only two companies while 84 companies were downgraded. ?Between April and May 2009, we have downgraded another 47 companies and upgraded not a single company. So the downgrades continue this year too. However, the intensity of downgrades has definitely fallen,?? she explained At present, 14% of Crisil?s ratings have got negative outlook, against 2-3% two years ago. The rest 86% have got stable and not-positive outlook. ?Biggest contributor to the NPAs would thus be corporate and not the retail sector in the years to come,?? she said.

It is because most banks have closed down their personal loan business and housing loans form more than 50% share of the total retail portfolio of the Indian banking system.

In India, due to social as well as emotional reasons, people usually do not default on housing loans, she added.

The biggest increase in NPAs will happen in most vulnerable sectors such as real estate and textiles, as 17% of the total credit growth has gone to these sectors.

Almost 78% of bank lending has gone to medium-risk sectors and 5% to low-risk sectors. The most stressed sectors in the economy today are real estate, textiles, gems & jewelry, chemical and auto ancillaries.

Least stressed sectors include pharmaceuticals, healthcare, power, FMCG and telecom. Little less than the least stressed would be banking.