MSME bad loans for banks may rise to 11% in FY24 from 9.3% in FY22: Crisil | The Financial Express

MSME bad loans for banks may rise to 11% in FY24 from 9.3% in FY22: Crisil

Credit and finance for MSMEs: “While relief measures did help contain asset quality deterioration last fiscal, the (MSME) segment saw the most restructuring at around 6 per cent compared with around 2 per cent for the overall banking sector. About a fourth of these accounts could potentially slip into NPAs,” said Crisil.

MSME bad loans for banks may rise to 11% in FY24 from 9.3% in FY22: Crisil
The overall GNPAs of banks are likely to improve 90 basis points (bps) to around 5 per cent by March 31, 2023, riding on post-pandemic economic recovery and higher credit growth.

Credit and finance for MSMEs: Even as gross non-performing assets (GNPAs) of banks are likely to improve to a decadal low of around 4 per cent in the next financial year 2023-24 on the back of the biggest improvement in the corporate segment, the asset quality in the MSME segment may deteriorate. According to a Crisil Ratings statement on Wednesday, gross NPAs in the MSME segment, which suffered the most during the pandemic, may rise to around 10-11 per cent by March 2024 from approximately 9.3 per cent as on March 31, 2022.

“While relief measures did help contain asset quality deterioration last fiscal, the (MSME) segment saw the most restructuring at around 6 per cent compared with around 2 per cent for the overall banking sector. About a fourth of these accounts could potentially slip into NPAs,” noted Crisil.

Importantly, the Reserve Bank of India (RBI) in its latest Financial Stability Report (FSR) in June this year noted that even as the gross NPA ratio of banks in the MSME sector dipped from 11.3 per cent in September 2021 to 9.3 per cent in March 2022, the bad assets in the sector remain relatively high. According to the report, the Rs 46,186-crore restructured MSME portfolio, which constituted 2.5 per cent of total advances under the May 2021 restructuring scheme, has the potential to create stress in the sector. 

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According to an analysis of the restructured loans due to Covid — based on the Reserve Bank of India (RBI) mandate in March 2021 for banks and other lenders to report accounts restructured due to the pandemic to credit bureaus — 2.7 lakh MSME accounts were tagged as restructured (aggregate outstanding of less than Rs 50 crore) as of March 2022, a report by SIDBI and credit bureau TransUnion CIBIL had noted in August this year. This constituted around 2.3 per cent of the total live accounts reported in the same time period. From a balance perspective, it constituted Rs 0.35 lakh crore which was around 1.5 per cent of MSME outstanding as of March 2022. 

Meanwhile, the overall GNPAs of banks are likely to improve 90 basis points (bps) to around 5 per cent by March 31, 2023, riding on post-pandemic economic recovery and higher credit growth, Crisil said. The corporate segment’s gross NPAs are expected to dip below 2 per cent next fiscal from a peak of around 16 per cent as on March 31, 2018. “This improvement is reflected in leading indicators such as the credit quality of bank exposures, said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings.

A Crisil study of large exposures of banks, constituting more than half of corporate advances, shows the share of high-safety exposures has increased to 77 per cent as on March 2022 from 59 per cent in March 2017, while exposure to sub-investment grade companies more than halved to 7 per cent versus 17 per cent, said Sitaraman. 

Also read: FE SMEArtha 2022: India’s top MSME voices, banks, NBFCs, others deliberate on trends in MSME lending landscape

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