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In the aftermath of the covid-19 crisis, Indian lenders could see a shift towards corporate credit from retail loans.
In the aftermath of the covid-19 crisis, Indian lenders could see a shift towards corporate credit from retail loans.

Bad loans may rise to 11-11.5% in FY21: Crisil

NPAs for NBFCs are also expected to swell with microfinance, micro, small and medium enterprise (MSME) loans and developer funding witnessing the sharpest spike

Asset quality in the banking sector is set to deteriorate with bad loans expected to rise from 9.6% of total estimated advances in March this year to 11-11.5% by March 2021, as a result of sharply lower recoveries and rising slippages, said rating agency Crisil.

Non-performing assets (NPAs) for non-banking financial companies (NBFCs) are also expected to swell with microfinance, micro, small and medium enterprise (MSME) loans and developer funding witnessing the sharpest spike.

“Asset quality deterioration will, however, remain moderate in housing loans and gold finance with less than 50 basis points increase in NPAs. Poor credit growth, including retails loans, along with rising NPAs and credit costs will singe banks and NBFCs," said Crisil.

Retail loan growth is expected to slump to its lowest level in a decade and the significant degrowth in underlying assets will affect retail loans, Crisil said. Sales of new housing units and passenger cars are expected to drop 45% and 25%, respectively, in FY21, it said. The sale of two-wheelers could fall 22%, while consumer durables sales could decline 17% in FY21.

Mint reported on 29 April that Indian lenders who have for several years now been pivoting towards retail loans could shift towards corporate credit, at least in the near term, as a result of the covid-19 shock to the economy. As companies start production after the lockdown, they would require working capital to tide over the after-effects of this disruption.

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