Mumbai: The Indian banking system's stock of dud assets will further reduce to up to 8 per cent level by March 2020, but the NBFCs may continue to face challenges, domestic rating agency Crisil said.
The gross non-performing assets (NPAs) for the system will come down to 8-8.5 per cent by March from the peak of 11.5 per cent in March 2018 as fresh accretion through slippages gets slower and also with big-ticket resolutions, it said.
The system has been afflicted by the scourge of high NPAs for nearly five years now, which has led to networth erosion and also led to the discovery of scams in the sector.
The agency's analysts said they are also including potential reverses from the financial sector companies which the banking system is staring at present in their NPA estimates.
Crisil's Somasekhar Vemuri said the banking system's credit growth will be stable at over 12 per cent, on Government's recapitalisation efforts for the state-run lenders and also the aggressive play by private sector ones, who will grow faster than the system.
The level of NPAs the banking system has at the end of the year will also be a final credit growth number they notch up because of the denominator effect, he said.
On the NPAs front, he said the fresh slippages are expected to come down to 3-3.5 per cent for FY20, as compared to 3.8 per cent in the year-ago period and a peak of 7.4 per cent in end FY18.
The situation in the crisis-hit non-banking finance companies (NBFC) sector was termed as "evolving" by the agency and the assets under management growth will slowdown to 12 per cent for the sector, as against 15 per cent in the year-ago period and over 18 per cent per annum in four years prior to that.
Wholesale lending focused entities without a strong parentage will find it difficult, it said, adding typically such NBFCs also have issues around asset-liability mismatches.
There is a possibility of shrinkage in the wholesale pools, it said. However, the retail-focused NBFCs and also those with strong parentage will not witness much of difficulties.
The agency said in the last six to seven years, the NBFCs have eaten into the business of the banks when it comes to extending loans, and the same shall now go back to the banks because of the issues at the NBFCs.
The present period of slowdown will not have any impact on the securitisation activities, which are already breaching the historic highs, it said, adding that much of the activity is focused around retail pools.
The volume of debt downgraded by the agency was very high at Rs 5.2 lakh crore in H1FY20 as against Rs 3.2 lakh crore for the full year FY19, it said.
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