Overall NPAs likely to fall but private bank NPAs could inch up: Krishnan Sitaraman, Crisil

Over the last 3-4 years, PSU banks have carried out large-scale NPA recognition. There has also been recoveries from some of the high-ticket NPAs which have been referred to NCLT, the most recent being Essar Steel, says Krishnan Sitaraman, Senior Director, CRISIL. Excerpts from an interview with ETNOW.


The banks have been saying that asset quality has bottomed out but the watch list keeps on growing for almost everyone. Are banks being delusional about what is really in their books?
Remember, so far, we have mostly seen results from some private sector banks. But majority of the NPAs are residing in public sector banks. We feel that once we have the results of all the banks, we will see a reduction in the overall NPA levels.

We may be seeing NPAs inching up in private sector banks because a large part of their portfolio is retail, SME and agri. These are the areas where NPAs are going to inch up. In the overall corporate book, we expect NPAs to slightly come down. The NPA levels of the public sector banks are around 13%. In the last three to four years, PSU banks have carried out large-scale NPA recognition. We are also seeing some traction in recoveries from high ticket NPAs which have been referred to NCLT, the most recent being Essar Steel.

When these numbers get reflected in the NPAs, we see NPA stocks coming down on the corporate side. But as I said before, we see retail, SME and agri NPAs going up. Overall, NPAs will inch down but on the private sector side where the average NPAs are 4-5%, NPAs could inch up.

What is the outlook for some of the north-eastern states like Assam? How much of an issue is it for the MFIs, particularly when the NRC issue has raised tempers. What do you see as more significant for the banks? If things go sour further, what is the risk to the system and some of the specific banks in those regions?
The MFIs exposure is towards the vulnerable customer segments. The borrowers are sensitive to socio-political reasons plus economic changes. If I go back 20 years or so, as the MFI industry in India has evolved, there have always been situations where either locally or nation-wise, there have been impacts on the sector. Cases in point, the Andhra microfinance crisis, the demonetisation situation. Plus, in specific states and districts, we have seen socio-political issues coming to the fore. A year or so back, we had issues in Odisha; now we are talking about certain districts in Assam.

We believe that if you take a five-year block for MFIs, there could be four years of decent performance and then there could be one year when particular situations could result in delinquencies going up.

We should look at MFIs from a five-year horizon and average out the profitability of asset quality issues. Coming to Assam again, there have been issues in certain districts there. We expect delinquencies to go up. But if I look at most of the banking system, excepting very few handpicked banks, the proportion of MFIs in their overall loan book is not very significant. So if NPAs go up, that need not result in a significant uptick in their overall NPA levels.