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NPLs in Indian banking sector likely to shoot 10-11% of gross loans in next 12-18 months: S&P
Nov-25-2020

S&P Global Ratings in its latest report has said that non-performing loans (NPLs) in the Indian banking sector are likely to shoot up to 10-11 percent of gross loans in the next 12-18 months, from 8 percent on June 30, 2020. It said forbearance is masking problem assets for Indian banks arising from COVID-19 and the financial institutions will likely have trouble maintaining momentum after the proportion of NPL to total loans declined consistently so far this year.

According to the report, the banking system's credit costs will remain elevated at 2.2-2.9 percent this year and next. It also said resumption of economic activity, government credit guarantees for small to mid-size enterprises, and buoyant liquidity is helping to limit stress. S&P’s NPL estimates are lower than previous but it is still of the view that the sector's financial strength will not materially recover until fiscal 2023 (ended March 31, 2023).

For NBFCs S&P rate, performance has been improving. Like with banks, collections have surged for NBFCs. It said top-tier NBFCs are benefiting from surplus system liquidity, as indicated by a sharp reduction in risk premiums. However, it noted that weaker finance companies have faced higher risk premiums. It expects such polarization to persist in 2021.  

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