Banks May See Rise In Bad Loans From Retail, Small Businesses, Says SBI Official Ashwini Kumar Tiwari

As of December 31, Indian banks had around Rs 19 lakh crore or more than 14 per cent of total loans as outstanding exposure to the MSME sector, as per RBI data

Banks in India could see a rise in bad loans or non-performing assets (NPAs) in the retail and small business segments from its recent low levels, an official with State Bank of India (SBI) told news agency Reuters on Thursday. According to the news report, while loans to this segment have been growing fast, defaults have thus far been few.

At an event in Mumbai, Ashwini Kumar Tiwari, managing director at State Bank of India said, "We cannot have a system where we have a 20 per cent growth year-on-year on MSME and retail and then an NPA (ratio) which will remain below 1 per cent for retail. This is not sustainable, it has to align with the system."

The gross non-performing loans for Indian banks fell to a seven-year low of 5 per cent as of September 2022, according to the Reserve Bank of India's financial stability report. For the small businesses, the bad loans were higher at 7.7 per cent.

The gross NPA ratio for the small and medium enterprises may rise to 10-11 per cent by March 2024, the Associated Chambers of Commerce and Industry of India and CRISIL Ratings said in a report.

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

A gross NPA ratio of less than 10 per cent 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.