Banks May Face Rise In Bad Loans From Retail, Small Businesses: SBI Official
An official with the largest lender in the nation indicated on Thursday that bad loans in the retail and small business sectors could rise from their current low levels in Indian banks. Loans to this sector have been expanding quickly, but there have only been a few defaults so far.
“We cannot have a system where we have a 20% growth year-on-year on MSME and retail and then an NPA (ratio) which will remain below 1% for retail,” Ashwini Kumar Tiwari, managing director at State Bank of India said at an industry event in Mumbai. “This is not sustainable, it has to align with the system.”
According to the Reserve Bank of India’s financial stability report, the percentage of gross non-performing loans held by Indian banks reached a seven-year low of 5% as of September 2022. Bad loans were more prevalent for small enterprises, at 7.7%.
According to a report released today by the Associated Chambers of Commerce and Industry of India and CRISIL Ratings, the gross NPA percentage for small and medium-sized businesses may increase to 10-11% by March 2024.
According to Ashwini Kumar Tiwari of SBI, these companies frequently have weaker cash flows or insufficient equity, which degrade quickly during stressful times and eventually result in defaults. Nonetheless, it is obvious that MSME (Micro, Small and Medium Businesses) stress is something that could be on the horizon.
According to the RBI’s data on the sectoral deployment of bank credit as of December 31, Indian banks had around 19 trillion rupees, or more than 14% of all loans, outstanding exposure to the MSME sector.
According to Tiwari, write-offs and one-off resolution programmes have helped MSMEs reach a gross NPA ratio of less than 10%, albeit he noted that this is still a high number.
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