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Banks can see rise in bad loans from retail, small businesses: SBI

State Bank of India, the country’s largest lender, on Thursday said that Indian banks are expected to see an increase in bad loans in the retail and small business segments from its recent low levels.

While loans to this segment have been growing fast, defaults have thus far been few.

Addressing an event in Mumbai, SBI managing director Ashwini Kumar Tiwari said: “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.”

“This is not sustainable, it has to align with the system,” the SBI top official added.

Last year in December, the Reserve Bank of India said banks’ gross NPA ratio has fallen to a seven-year low of 5 per cent as of September 2022 and the banking system remains sound and well-capitalised.

For the small businesses, the bad loans were higher at 7.7%, the RBI’s financial stability report added.

In a report released Thursday, the Associated Chambers of Commerce and Industry of India and CRISIL Ratings said the gross NPA ratio for the small and medium enterprises may rise to 10-11% by March next year.

These businesses often have weaker cash flows or little equity, which erode quickly in times of stress and eventually leads to defaults, SBI’s Tiwari said. “But clearly, MSME (Micro, Small and Medium Enterprises) stress is something which might be coming.”

As of 31 December, 2022, Indian banks had around 19 lakh crore or more than 14% of total loans as outstanding exposure to the MSME sector, according to the RBI data on sectoral deployment of bank credit.

A gross NPA ratio of less than 10% for MSMEs has been achieved largely on the back of write-offs and one-off resolution schemes, Tiwari said, flagging that it still remains a large number.

Meanwhile, analysts believe the asset quality of Indian banks is expected to improve, aided by a fall in fresh slippages.

Jindal Haria, director-financial institutions, India Ratings and Research stated: “Asset quality will improve as banks continue to provide for existing gross non-performing assets (NPAs) and incremental slippages also continue the downward trend.”

With agency inputs

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